Convertible Loan Agreements (CLAs) are one of the most common financing instruments used in early-stage startup investments globally. In Turkey, however, the legal enforceability and tax consequences of such instruments are not clearly defined in statute, making it essential to draft these agreements with strong legal precision. A CLA typically involves an investor providing a loan that converts into equity under certain conditions—such as future financing rounds, valuation milestones, or time-based triggers.
At our Turkish Law Firm, we help both startup founders and international investors negotiate and draft convertible loan agreements in Turkey that are enforceable and commercially sound. Our English speaking Turkish lawyers address the legal ambiguities under Turkish company law, structure conversion mechanisms, and minimize the risk of future shareholder disputes. As a best lawyer firm in Turkey for startup transactions, we ensure compliance with the Turkish Commercial Code, corporate tax rules, and cross-border funding regulations.
Legal Status of Convertible Loans in Turkey
Turkish law does not have a dedicated provision that governs convertible debt instruments. As such, CLAs must be constructed as a hybrid between a loan contract and a future share subscription agreement. This means that the legal interpretation of these agreements depends heavily on the clarity of their language and the intention of the parties. Courts may view the initial funds as a loan unless the conversion is explicitly defined, documented, and executed in accordance with corporate procedures.
Our Istanbul Law Firm drafts bilingual CLA contracts that include clearly defined conversion mechanics, valuation caps, discount rates, default clauses, and anti-dilution provisions. We also ensure that board resolutions, general assembly approvals, and share capital increase filings are secured before conversion is activated. Working with a Turkish Law Firm familiar with CLA disputes prevents your convertible note from being deemed an unenforceable loan. Our English speaking Turkish lawyers also advise on fiduciary duty compliance and shareholder protection clauses during conversion.
Equity Conversion Process and Corporate Formalities
For a convertible loan agreement in Turkey to successfully transition from debt to equity, the parties must comply with share transfer and capital increase procedures under the Turkish Commercial Code (TCC). This typically involves holding a general assembly meeting to approve the capital increase, updating the Articles of Association (AoA), issuing new shares, and registering the amended structure with the Trade Registry. In cases where multiple investors are involved, a coordinated shareholder agreement may be needed to reflect post-conversion ownership percentages.
Our Turkish Law Firm assists startups in securing investor board resolutions, drafting share issuance notices, and preparing conversion certificates. We also liaise with accountants and registry offices to avoid errors in capital entries and valuation reports. Our English speaking Turkish lawyers ensure the legality of conversion and help protect founders from dilution or post-conversion control loss. As a best lawyer firm in Turkey for startup equity structuring, we manage the entire equity onboarding process end-to-end.
Tax Risks of Convertible Loan Agreements
From a taxation standpoint, CLAs present several potential risks under Turkish corporate and income tax law. If the loan is not properly documented as convertible, the Tax Authority may treat the investor payment as a standard loan, making the accrued interest taxable and conversion inadmissible for share capital increase. If a valuation report is not submitted, the share issuance may trigger suspicion regarding hidden capital injections, leading to tax audits and retroactive assessments. In addition, improper withholding tax (stopaj) declarations may lead to administrative penalties.
Our Istanbul Law Firm works alongside certified tax advisors to minimize tax exposure for both startups and investors. We ensure that interest components are separately booked, conversion pricing is backed by an independent valuation report, and capital increase filings are submitted in compliance with tax law. Our English speaking Turkish lawyers also structure pre-conversion financing with bridge agreements to protect against early termination disputes. As a leading Turkish Law Firm in investment tax compliance, we proactively identify and resolve regulatory gray zones in convertible debt arrangements.
Investor Protections and Multi-Party CLA Agreements
In many early-stage startups, multiple investors participate in convertible note rounds using either a master CLA or parallel bilateral agreements. In such cases, investor alignment becomes crucial—especially in determining pro rata rights, liquidation preferences, anti-dilution clauses, and cap table impact. Any ambiguity may lead to future disputes when the company reaches Series A or exits through M&A. In cross-border CLA deals, parties often use adapted versions of SAFE or CLN (Convertible Loan Note) frameworks from U.S. or U.K. models, but these must be localized under Turkish legal doctrine to be enforceable.
Our Turkish Law Firm prepares harmonized investment agreements combining convertible clauses with shareholders' rights, drag-along provisions, and exit planning. We coordinate with VC fund managers, startup founders, and legal counsel abroad to ensure full compliance. Our English speaking Turkish lawyers also help startups draft summary CLA term sheets for investor pitch decks, aligned with Turkish enforceability standards. As a best lawyer firm in Turkey for startup finance, we ensure all parties are aligned from day one to avoid post-conversion legal friction.
Also read: tax planning for startup exits and reinvestment in Turkey
Regulatory Considerations and Investor Dispute Risks
Convertible loan structures used in Turkish startups may trigger regulatory scrutiny—particularly when used in fintech, healthtech, or data-driven business models. The Capital Markets Board (SPK) may review transactions if the startup engages in securities issuance or investor solicitation. Similarly, startups operating in regulated industries (e.g. finance, payment systems, health) must also ensure their fundraising does not conflict with Banking Law (BDDK) or KVKK (data protection) obligations. Failure to assess these risks may result in sanctions or loss of license.
Our Turkish Law Firm evaluates CLA enforceability and sectoral impact from the earliest stages of funding. We also prepare arbitration and dispute resolution clauses in convertible agreements to reduce litigation risk. Our English speaking Turkish lawyers represent startups and investors in post-conversion disputes involving valuation conflicts, control rights, and board seat disagreements. As a best lawyer firm in Turkey for startup finance and corporate litigation, we protect investment relationships with strategic legal structuring.
Frequently Asked Questions (FAQs)
- Is a convertible loan legal in Turkey? Yes, but it must be structured properly under the Turkish Commercial Code.
- Can a foreign investor use a CLA in Turkey? Absolutely. But foreign currency, valuation, and tax issues must be managed.
- Does a CLA require shareholder approval? Yes. General assembly approval is needed for conversion to equity.
- What are the biggest risks of a CLA? Poor documentation, invalid conversion, tax penalties, and shareholder disputes.
- Is SAFE or CLN enforceable in Turkey? Only if adapted to Turkish law and supported by proper resolutions.
- Can I use English language in the agreement? Yes. Bilingual contracts are permitted, but Turkish is required for registry filings.
- Do I need a lawyer? Absolutely. A Turkish Law Firm ensures your CLA is valid, tax-efficient, and enforceable.
Protect Your Convertible Investment with a Turkish Law Firm
Convertible loans are powerful tools for startup investment—but in Turkey, they require precise legal construction to avoid risk. From shareholder approval to capital registration, tax alignment to dispute resolution, every clause in a CLA matters.
At our Istanbul Law Firm, our experienced English speaking Turkish lawyers draft, review, and enforce convertible loan agreements that meet global standards while complying with local law. As a best lawyer firm in Turkey for venture financing and startup legal strategy, we help you invest, convert, and exit with full legal confidence.