Pledging Company Shares as Collateral in Turkey

When foreign investors and entrepreneurs work with Turkish companies, they often need to raise financing or secure obligations using company shares as collateral. Pledging shares — known in Turkish as pay rehni — is a common mechanism in corporate transactions, bank lending, and shareholder arrangements in Turkey. The rules differ significantly depending on whether the company is a joint stock company (anonim şirket, A.Ş.) or a limited liability company (limited şirket, Ltd. Şti.), and getting the formalities wrong can leave the pledge legally void.

This article explains how share pledges work in Turkey, what the legal requirements are for each company type, and what foreign investors in Antalya and across Turkey should watch out for before signing anything.

Why Pledging Shares Matters in Turkey

Share pledges serve two main purposes in Turkish corporate practice. First, a shareholder may pledge their shares to a lender as security for a loan. If the loan is not repaid, the lender can enforce the pledge and recover the debt from the value of the shares. Second, in multi-party transactions — such as joint ventures or share purchase agreements — one party may agree to keep shares pledged until all contractual obligations are fulfilled.

For foreign investors, Antalya is a popular base for real estate holding companies, tourism businesses, and trading entities. These structures often involve financing from Turkish banks or private lenders, and those lenders routinely ask for share pledges as additional security alongside other collateral.

Understanding the correct process upfront is far cheaper than unwinding a defective pledge in court later.

Pledging Shares in a Joint Stock Company (A.Ş.)

Turkish law distinguishes between shares that have been printed as physical share certificates and shares that have not yet been certificated — sometimes called çıplak pay (bare or uncertificated shares).

Uncertificated shares are the more common situation in private A.Ş. companies. Under the Turkish Civil Code, pledging uncertificated shares requires a written pledge agreement. This written form is a validity condition, not just an evidentiary one — meaning that an oral or implied pledge over uncertificated shares is legally void. The Turkish Court of Cassation (Yargıtay) has consistently confirmed this requirement: the pledgor's signature on the written agreement is sufficient; the pledgee does not need to countersign for the formality to be met.

Registered share certificates (nama yazılı pay senetleri) that have actually been printed and issued must be pledged through endorsement on the certificate plus physical delivery to the pledgee. If the share certificate exists but is not delivered, the pledge is not perfected.

Bearer shares are now heavily restricted under the Turkish Commercial Code (Türk Ticaret Kanunu — TTK), so this category is rarely relevant for most investors.

It is also important to note that a pledge agreement does not in itself restrict the shareholder's voting rights or dividends during the pledge period unless the agreement explicitly provides otherwise. The parties should address this in the pledge contract.

Pledging Shares in a Limited Liability Company (Ltd. Şti.)

This is where many foreign investors are caught off guard. Unlike share certificates in a joint stock company, the share certificates issued by a Turkish LLC are evidentiary documents only — they are not title documents. The Turkish Court of Cassation (12th Civil Chamber) has repeatedly confirmed that delivering an LLC's share certificate to a creditor does not create a valid pledge over the shares. Put simply: handing over an LLC share certificate as collateral is legally meaningless.

For LLC shares, the formal requirements under the Turkish Commercial Code mirror those for a share transfer. The pledge agreement must be in writing and the signatures of the parties must be notarized (Noterce onaylanması). This reflects the principle under TTK m. 595 that governs LLC share transfers, applied by analogy to pledge arrangements.

Because of this notarization requirement, share pledges in Turkish LLCs tend to involve more paperwork and cost than their A.Ş. equivalents. Investors should budget for notary fees and allow processing time.

Commercial Pledge Law and Registration

The Commercial Movable Pledge Law (Ticari İşlemlerde Taşınır Rehni Kanunu, no. 6750) establishes a framework for registering movable property pledges in commercial transactions. Share pledges in commercial contexts may intersect with this framework depending on how the transaction is structured, so it is worth reviewing whether registration in the pledge registry (Taşınır Rehni Sicili) is appropriate or required for the specific transaction.

Registration provides public notice and priority over later-ranking creditors — an important consideration when the same shares may potentially secure more than one obligation.

Enforcing a Share Pledge

If the debtor defaults, the pledgee does not simply take ownership of the shares automatically. Enforcement in Turkey follows execution proceedings under the Enforcement and Bankruptcy Law (İcra ve İflas Kanunu). The pledgee generally initiates foreclosure proceedings to convert the pledged shares into cash through a sale, and the proceeds are applied to the outstanding debt.

Attempting to agree upfront that the pledgee may take outright ownership of the shares on default — a clause known as forfeiture — is void under Turkish law. Any such clause in a pledge agreement is unenforceable. Lenders and investors should structure their exit rights carefully and with local legal advice rather than importing provisions from foreign law agreements without adaptation.

Arbitration clauses in the underlying transaction agreement can be useful for resolving disputes about whether a default actually occurred, but enforcement of the pledge itself goes through Turkish execution courts.

Key Risks for Foreign Investors

Foreign investors holding shares in Turkish companies should be aware of several practical risks when it comes to share pledges:

• Defective formalities: An unsigned, unnotarized, or oral pledge arrangement may be completely void under Turkish law, leaving the lender with no security at all.
• Consent requirements: Some company articles of association require shareholder or board consent before shares can be pledged. Check the ana sözleşme (articles of association) before signing a pledge agreement.
• Competing claims: Without proper registration, a pledge may be defeated by a later creditor who registers first.
• Company type confusion: Rules for A.Ş. and Ltd. Şti. are different enough that using the wrong form of pledge can invalidate the entire arrangement.

Foreign investors setting up or investing through Turkish companies in Antalya should take legal advice before signing any pledge or collateral document. Our earlier article on choosing between a JSC and LLC outlines how company type affects your legal exposure in other areas too. Similarly, those bringing capital into Turkey as minority shareholders will find relevant context in our guide on foreign capital partnerships.

Frequently Asked Questions

Q: Can a foreign national pledge shares in a Turkish company?

Yes. Foreign nationals can hold and pledge shares in Turkish companies, subject to any sector-specific restrictions. The legal formalities for the pledge are the same regardless of the pledgor's nationality.

Q: Does a share pledge give the lender voting rights in the company?

Not automatically. Unless the pledge agreement explicitly grants proxy voting rights, the shareholder retains voting rights even while the shares are pledged. This is a negotiating point that should be addressed in the pledge contract.

Q: What if the articles of association prohibit share pledges?

If the company's articles of association contain a restriction on pledging shares, creating a pledge in breach of that restriction may be challenged or void as against the company. Always review the articles of association before proceeding.

Q: Is a notary required for pledging A.Ş. shares?

For uncertificated A.Ş. shares, a notary is not legally required — a signed written agreement is sufficient. For Ltd. Şti. shares, notarization of signatures is required by law.

Q: What happens to the pledge if the company is sold or merged?

A share pledge generally survives changes in company ownership unless it is released. In a merger or restructuring, the fate of existing pledges should be addressed in the transaction documents.

How Mona Hukuk Can Help

Our Antalya-based team advises foreign investors and businesses on share pledge arrangements, company collateral structures, and corporate financing transactions in Turkey. We draft and review pledge agreements, verify articles of association restrictions, and guide clients through notarization and registration requirements — in English and other languages.

Contact us at contact@monahukuk.com or call +90 (242) 606 14 32 to schedule a consultation in Antalya.