Does the Statutory Non-Competition Rule Continue Automatically after Departure?
When a shareholder transfers his or her share or leaves the company, the obligations arising from the capacity of shareholder as a rule come to an end. The duty-based non-competition rule under TCC Art. 626 of a manager of a limited liability company is likewise tied to the period of office as manager. To restrict competition after departure, in most cases a share transfer agreement, an exit-from-shareholding protocol, a confidentiality agreement or another valid contractual basis is required.
However, the absence of a contract does not give the former shareholder the freedom to use company secrets, to disparage the company, to copy documents or to draw customers by misleading methods. The unfair competition provisions of the Turkish Commercial Code (TCC) and the duties to keep secrets may apply to specific conduct after departure as well.
"Competing" after departure must be distinguished from "using the company's secrets and existing relationships in a manner contrary to the rule of good faith".
Why Does the Departing Shareholder's Previous Capacity Matter?
The departing person may at the same time be a shareholder, manager, member of the board of directors, employee or consultant. Each capacity creates a different legal regime.
| Previous capacity | Basic review after departure |
|---|---|
| Shareholder only | Company/shareholders' agreement, keeping secrets and unfair competition |
| Manager of a limited liability company | Breaches of TCC Art. 626 during the term of office and the exit agreement |
| Member of the board of directors | TCC Art. 396 during the term of office and liability for care and loyalty |
| Employee shareholder | Conditions of the employee non-competition rule under Turkish Code of Obligations (TBK) Arts. 444-447 |
| Consultant or service provider | The service contract, confidentiality, intellectual property and personal data provisions |
For example, it is possible for a person to resign from the post of manager while remaining a shareholder, or to transfer the share while the employment contract continues for some time. The periods of liability must be determined separately.
Non-Competition in a Share Transfer or Exit Agreement
A valid interest must exist
The purpose of a non-competition restriction is to prevent the customer base, business reputation and technical know-how that the acquirer has obtained together with the share price it paid from being immediately emptied out by the former shareholder. The prohibition cannot be established merely to eliminate a competitor or to unnecessarily obstruct the person's professional activity.
Subject, period and geographic area must be specific
Unlimited provisions such as "may not do any business anywhere in the world" carry a serious risk of invalidity and of reduction. The restriction must be linked to:
- The products or services in which the company is actually active,
- The customer base worthy of protection,
- The real geography of the activity,
- The period necessary to protect the value of the business.
In the ancillary restraint approach of competition law, reasonable periods linked to the transfer of the customer base and know-how may be accepted; however, the periods in merger and acquisition guidelines are not automatically applied to every private law contract. The scope of the specific transaction must be examined separately.
The penalty clause must be proportionate
A penalty clause may be agreed for breach. The amount of the penalty clause should be determined taking into account the share transfer price, the company's interest worthy of protection, the seriousness of the breach, the period and the economic situation of the parties. A reduction of an excessive penalty clause by the judge may come into play.
In its decision dated 09.10.2019, the 11th Civil Chamber of the Court of Cassation assessed the breach of a non-competition prohibition limited to two years and to certain districts, and made an equitable reduction in respect of the penalty clause.
The Obligation Not to Solicit Customers
A non-solicitation clause is a narrower instrument of protection than a general non-competition prohibition. Instead of preventing the former shareholder from working in the entire sector, it limits the former shareholder's actively directing particular customers of the company to himself or herself or to a third party.
Who is a customer?
The following groups should be distinguished from one another in the contract:
- Customers with an active contract on the date of departure.
- Customers with whom business was done within a certain recent period.
- Potential customers to whom an offer was made.
- Customers whom the former shareholder personally brought to the company.
- Customers who apply spontaneously in the public market.
Vague definitions such as "all present and future customers of the company" give rise in practice to problems of proof and validity.
Active solicitation and the customer's free choice
The former shareholder's winning a customer by sending a special offer to the customer, disparaging the company, learning the renewal date from confidential records, or moving to his or her own business work that was proceeding in the company's name may be regarded as active solicitation. By contrast, a customer's applying of its own will after seeing a public advertisement cannot be assessed in the same way.
In its decision dated 05.09.2024, the 11th Civil Chamber of the Court of Cassation emphasized that former employees or a shareholder founding a business in the same sector and working with former customers does not by itself constitute unfair competition; the relationship between the trade secret used and the winning of the customer must be proved concretely.
Does the Confidentiality Obligation Continue after Departure?
The protection of company secrets may, by its nature, continue after departure. The presence of a specific confidentiality clause in the share transfer agreement strengthens the protection; however, protection against unfair competition and for trade secrets is not tied only to the contract.
Information that may be regarded as a trade secret
- Customer needs, purchase history and special prices.
- Cost, discount, profitability and offer algorithms.
- Supplier terms and purchasing strategy.
- Production recipes, source code, technical drawings and workflows.
- Investment, tender and product plans not yet announced.
- Personnel salaries and strategic organizational data.
General professional knowledge, experience remaining in the person's memory and public sector data are not, as a rule, regarded as company secrets. The company should itself protect the information it claims to keep confidential with reasonable security measures.
Personal Data and Customer Records
If the former shareholder transfers the customer list to his or her own device, exports the email address book or moves CRM records to the new company, this gives rise, in addition to a trade secret discussion, to a data processing and transfer problem under the Personal Data Protection Law (KVKK).
In the exit process, the company should:
- Close user accounts on time.
- Preserve access and download logs.
- Take back company devices and backups.
- Check, by a lawful method, whether company data exists on personal devices.
- Draw up a retention and deletion record.
- Assess the KVKK notification obligations if there is a suspicion of a data breach.
Carrying out an unlimited device inspection for the purpose of collecting evidence may also be unlawful. The inspection should be limited to its purpose, proportionate and conducted with expert support.
When Does Unfair Competition Come into Play?
The conduct of a departing shareholder may be examined under TCC Arts. 54-55 in the following examples:
- Making statements about the company that are untrue and damaging to its reputation.
- Appropriating the company's offers, documents or work products.
- Creating confusion with the company's trade name, trademark or web appearance.
- Inducing employees to breach their contracts.
- Making targeted offers using confidential customer data.
- Misleading the customer in order to take over a continuing company contract in his or her own name.
- Using or disclosing the company's technical or commercial secrets without permission.
By contrast, merely founding a new business, working in the previous sector or doing business with a former customer at the customer's free choice is not sufficient for liability without proof of an additional unfair method.
The Claim That the Non-Competition Prohibition Is Invalid or Excessive
The former shareholder may raise the following defenses:
- That there is no non-competition prohibition in the contract.
- That the period, region or subject of the prohibition is disproportionate.
- That the prohibited activity does not fall within the company's real field of activity.
- That the customer applied spontaneously.
- That the information alleged to have been used is public or general professional knowledge.
- That the company took no measures to keep the information confidential.
- That there is no causal link between the breach and the loss.
- That the penalty clause is excessive.
- That the right holder is the company, not the person who brought the action.
In its decision dated 18.11.2019, the 11th Civil Chamber of the Court of Cassation rejected the claim because the exit protocol contained no undertaking not to operate in the same field and no concrete evidence of unfair competition could be shown.
How Is the Breach Proved?
Contracts and resolutions
The share transfer agreement, the exit-from-shareholding protocol, the confidentiality agreement, board of directors or general assembly resolutions and job descriptions should be examined first.
Timeline
The following dates should be compared:
- The date of the share transfer and of leaving office.
- The incorporation of the new company and the registration of the domain name.
- The date of data downloading or email forwarding.
- The date of the first customer contact and offer.
- The termination or renewal date of the former company contract.
- Personnel transfers and device handover dates.
Technical and commercial evidence
Email headers, CRM logs, file metadata, cloud access, similarities between offers, telephone records, web archives, bank and invoice records, customer statements and notarial findings may be assessed together.
Lost turnover alone does not prove the breach. Alternative causes such as market contraction, price change, service quality and the customer's independent choice should be separated out.
Legal Remedies Available to the Company
Claims based on the contract
If a valid non-competition, non-solicitation or confidentiality provision has been breached, the penalty clause, specific performance, cessation of the breach and excess loss may be claimed. The scope of the contract and to which party the right of claim belongs should be clear.
Unfair competition claims
The options of a declaration of unfair competition, its prevention, the removal of its consequences, correction, pecuniary and non-pecuniary damages and the surrender of the benefit obtained may be assessed. The time limits should be checked without delay.
Interim injunction and preservation of evidence
If irreparable harm will arise because of continued use of customer data, the spread of trade secrets or a confusing digital appearance, a proportionate interim injunction may be requested. The request for an injunction should not be so vague as to stop all the competitor's activity.
Personal data and intellectual property applications
Depending on the nature of the event, a notification/application to the KVKK Board, trademark and copyright claims or routes under criminal law may also come into play separately.
Provisions That Should Be in an Exit Protocol
| Heading | Matter to be regulated |
|---|---|
| Competition | Subject of activity, region, period and exceptions |
| Customers | Definition of active customers and potential customers; the position of passive applications |
| Personnel | Non-solicitation of employees, distinction between general advertisements and spontaneous applications |
| Confidentiality | Trade secret categories, retention period, permitted disclosures |
| Data | Device, email, cloud, backup and deletion record |
| Intellectual property | Ownership of trademarks, domain names, software, content and designs |
| Breach | Penalty clause, injunction, loss and method of proof |
| Transfer process | Customer notification, ongoing work and sharing of payments |
The Company's Exit-Day Checklist
- Have the changes in the trade registry and signature authority been completed?
- Have bank, email, CRM, ERP and cloud access been closed?
- Have devices, keys, cards, files and backups been handed over?
- Has confirmation of confidentiality and data deletion been obtained?
- Have ongoing customer offers and contracts been allocated?
- Is control of the domain name, social media and telephone lines with the company?
- Has correct and proportionate information been given to personnel and customers?
- Have the non-competition and non-solicitation periods been entered in the calendar?
Conclusion
A shareholder leaving the company working in the same sector is not automatically prohibited. Legal liability arises where there is a valid and proportionate contractual restriction, or where the former shareholder uses the company's secrets, customer data, trademark and business opportunities in a manner contrary to the rule of good faith.
For the company, the most effective protection is not to put forward broad claims that are hard to prove after departure, but to regulate in concrete terms, in the share transfer or exit protocol, the provisions on competition, customers, personnel, confidentiality, data and intellectual property, and to close technical access in a controlled way on the day of departure. For the former shareholder, the scope of the prohibitions should be distinguished from general professional knowledge and the area of free competition.
Frequently Asked Questions
Can a shareholder who leaves the company found a company in the same sector?
If there is no valid contractual non-competition prohibition or concrete unfair competition conduct, the person may as a rule operate in the same sector. However, the person may not use company secrets and data, and may not direct customers by misleading methods.
How many years can a non-competition prohibition in a share transfer agreement last?
There is no single period valid for all transactions. The period should be proportionate to the customer base transferred, the know-how, the field of activity and the geography. Excessively long or unlimited prohibitions carry a risk of invalidity and reduction.
Is it prohibited to make an offer to a former customer?
Not always. Liability may arise if there is a non-solicitation clause, use of confidential information or a misleading method. The customer's independent and spontaneous application is assessed differently.
Can the company ask for the customer list back?
The databases, devices and files belonging to the company must be returned; copies must be deleted in a lawful manner. The use of personal data by the former shareholder for a new purpose may also constitute a KVKK violation.
If there is a penalty clause, must the company also prove its loss?
The conditions for claiming the penalty clause are determined according to the contract. If excess loss is claimed, proof may be required separately. The judge may reduce an excessive penalty clause.
What happens if the former shareholder makes statements disparaging the company?
Untrue statements, or statements that are unnecessarily hurtful, may constitute unfair competition. Claims for a declaration, prevention, correction and damages may come into play.
If there is no non-competition prohibition, does confidentiality also end?
No. A non-competition prohibition and keeping secrets are different obligations. The protection of information in the nature of a company secret may continue after departure.
Should the shareholder or the company bring the action?
If the loss has arisen in the company's assets, the right of claim may as a rule belong to the company. The shareholder's personal loss claim must be separated from the company's loss, and the capacity of the claimant correctly determined.
Sources
Legislation and official sources
1. Turkish Commercial Code No. 6102, in particular Arts. 54-63, Art. 396, Art. 613 and Art. 626.
2. Turkish Code of Obligations No. 6098, in particular the provisions on contracts, penalty clauses and the employee non-competition rule, Arts. 444-447.
3. Personal Data Protection Law No. 6698 and data security guides.
4. Competition Authority, Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions.
Case law
5. Court of Cassation 11th Civil Chamber, E. 2018/5376, K. 2019/6390, dated 09.10.2019.
6. Court of Cassation 11th Civil Chamber, E. 2019/302, K. 2019/7290, dated 18.11.2019.
7. Court of Cassation 11th Civil Chamber, E. 2023/4011, K. 2024/6051, dated 05.09.2024.
8. Court of Cassation 11th Civil Chamber, E. 2014/15729, K. 2015/1135, dated 02.02.2015.
9. Court of Cassation 11th Civil Chamber, E. 2016/1891, K. 2017/1053, dated 23.02.2017.