Preferred Shares: A Strategic Tool for Investor Protection

As start-up investments continue to grow, investors seek mechanisms that safeguard their capital and secure their exit strategies. Under Turkish Commercial Code, one of the most effective legal tools available is the “preferred share”.

What Are Preferred Shares?

Preferred shares grant certain rights to their holders that go beyond those of ordinary shareholders. These rights may include priority in dividend distribution, superior voting rights, representation on the board of directors, or preferential treatment in liquidation proceeds. In this way, investors not only become shareholders but also gain protections that align with their financial expectations.

Why Do They Matter for Investors?

• Protective Voting Rights: By attaching protective provisions to preferred shares, critical corporate decisions cannot be taken without investor approval.

• Board Representation: A seat on the board ensures that investors play an active role in decision-making, rather than remaining passive shareholders.

  
  

Judicial Approach in Turkey

The Court of Cassation (Yargıtay) has consistently emphasized that privileges must be expressly attached to shares and duly regulated in the articles of association. Moreover, decisions that affect the rights of preferred shareholders may require the approval of a special meeting of such shareholders.

Conclusion

While instruments like SAFE or convertible notes dominate in common law jurisdictions, their application under Turkish law is limited. However, preferred shares remain a robust and flexible mechanism for protecting investors in Turkey. With a well-structured preference scheme, both founders and investors can achieve a more balanced and sustainable partnership.

This content is for general informational purposes only; it does not substitute for professional legal advice regarding specific cases.