Non-Competition, Confidentiality and Customer Non-Solicitation Clauses in Share Transfer and Shareholder Exit Agreements

Why Do These Clauses Appear in Share Transfer and Exit Agreements?

The aim is to protect the economic value the buyer has purchased

The value of a company share is not made up only of balance-sheet items. The customer base, distribution network, commercial reputation, team, special business processes and know-how may be important in determining the sale price. If the seller starts a competing activity immediately after the transfer, using the same customer base and business knowledge, the buyer may not benefit from the economic equivalent of the price paid. A proportionate non-competition obligation aims to secure the passing of the transferred value to the buyer.

The purpose is not to remove the former shareholder from the market indefinitely

The legitimate purpose of a non-competition clause is not to protect the buyer from every kind of competition or to destroy the seller’s economic life. The prohibition must be connected with the transferred activity, customer base and know-how, and must not exceed the duration, geographical area and personal scope that are necessary. Clauses of the kind “may not work in any commercial activity anywhere in Türkiye and in the world, indefinitely” form no reasonable link with the main transaction and restrict economic freedom disproportionately.

Confidentiality and a non-competition clause do not serve the same function

Non-competition restricts the conduct of certain activities. Confidentiality, on the other hand, aims to prevent the disclosure, transmission or use of information. Even if the former shareholder can operate in the same sector, he or she cannot use the acquired company’s secret formula, pricing algorithm or customer contract terms. Conversely, merely calling publicly available or easily accessible information “confidential” does not give protection.

First, Which Legal Regime Applies Must Be Determined

The former shareholder who sells shares must not be confused with an employee’s non-competition obligation

Turkish Code of Obligations (TBK) Art. 444-447 introduce conditions specific to an employee’s post-employment non-competition obligation. The obligation of a person who sells shares or leaves the company, however, may be assessed within the framework of the share transfer agreement, the liquidation of the partnership, freedom of contract and the protection of the main transaction. The fact that the person is also an employee does not mean that every contractual prohibition automatically counts as an employee non-competition obligation; the purpose of the provision, the price and the economic context must be examined.

In its decision dated 27.03.2024, the 11th Civil Chamber of the Court of Cassation (Yargıtay) dealt with a person who was paid an exit price on the termination of an ordinary partnership (adi ortaklık) and was placed under an obligation not to serve only the company’s existing customers for two years. The Chamber upheld the decision that assessed the dispute under the partnership termination agreement rather than TBK Art. 444 et seq.; the narrow customer scope, the two-year duration and the exit price were important. 4

Statutory prohibitions arising from the capacity of company manager and shareholder are assessed separately

Until the share transfer is completed and until the management role ends, TCC Art. 396 for a member of the board of a joint-stock company, TCC Art. 626 for a manager of a limited liability company and TCC Art. 613 for a shareholder of a limited liability company may apply. A contractual prohibition does not replace the statutory duty of loyalty and non-competition during the term of office; the periods and sanctions must be shown separately.

The competition law dimension is strengthened in M&A transactions involving a transfer of control

If control changes hands through a merger or acquisition, whether the non-competition and employee / confidentiality restrictions count as “ancillary restraints” is assessed separately. The Competition Authority’s current 2026 Guidelines require the restriction to be directly related and necessary to the transaction, that there be no less restrictive alternative achieving the same result, and that it not exceed a reasonable level in terms of duration, subject matter, geography and persons. Provisions that do not qualify as ancillary restraints may be examined separately under Articles 4, 5 and 6 of Law No. 4054. 3

How Should the Scope of a Non-Competition Clause Be Written?

The prohibited activity must be clear and connected with the transferred business

The expression “may not compete with the company” does not provide sufficient clarity on its own. The prohibition should be defined by the products and services of the transferred company at the transaction date, activities in a completed development stage, the target customer group and sales channels. General wording that prevents the seller from working in an entirely different line of business exceeds the legitimate protective purpose.

Direct and indirect forms of competition should be listed in a limited and understandable way

As well as setting up a business in one’s own name, indirect forms of participation, such as becoming a manager at a competing company, acquiring a controlling interest, giving consultancy, or providing financing or the use of a trademark, may also be regulated. But treating ordinary portfolio investment, a passive minority interest or a professional service unrelated to competition as an automatic breach may be disproportionate. The definition of indirect activity should be limited by the criteria of control and influence.

The geographical area should be based on the company’s actual and planned field of activity

The geographical limit should be linked to the regions in which the company actually has a customer base or distributes, or has invested in and prepared to enter before the transaction. Imposing a worldwide prohibition when the transferred company operates only in certain provinces cannot be defended without a strong justification. The Competition Authority Guidelines also take the pre-transaction field of activity as the basis as a rule, and make exceptions such as investment in a new region subject to a concrete justification. 3

Duration is not a fixed figure but a test of necessity and proportionality

It should not be assumed that there is an unchanging statutory maximum duration for every share transfer or change-of-control transaction. The Competition Authority Guidelines generally regard non-competition obligations not exceeding three years as reasonable, and state that a longer period may also be possible where customer dependence and the nature of the transferred know-how concretely require it. This does not mean that a three-year period is automatically valid in every contract or that every provision exceeding three years is invalid. 3

In its decision dated 26.11.2013, the 11th Civil Chamber of the Court of Cassation held that, for a fifteen-year prohibition, a special justification, a separate payment and loss arising from the breach had not been proved, and that the restriction could not be explained in terms of the market and the elements of the transaction. The decision shows that, in long-term provisions, justification, the value of the transaction and proof of the breach are important together. 5

The personal scope must be written clearly as to whom the prohibition applies

A restriction may be envisaged in respect of the seller as a natural person, the companies the seller controls and certain representatives. Provisions that bind to the obligation family members over whom the seller has no control, independent dealers, users, or a broad circle of persons raise problems in terms of privity, not creating obligations to the detriment of third parties, and competition law. The economic unity and the relationship of control should be clearly defined.

How Should a Customer Non-Solicitation Clause Be Designed?

Customer non-solicitation should not be an absolute prohibition that freezes all customer relationships

A customer non-solicitation clause may restrict the former shareholder’s actively reaching out to the customer, making offers, inducing the customer to breach its contract, or using company information to transfer the relationship to himself or herself. A customer’s applying spontaneously without any steering, seeing a general public advertisement, or choosing a supplier by free tender should not be treated in the same way. The distinction between “actively generating demand” and “accepting spontaneous demand” can be regulated in the contract.

The protected customer base must be determinable

The scope of the prohibition may be defined as the customers existing at the closing date, persons with whom there has been a contract or quotation relationship in a specified recent period, customers the seller has been in contact with by reason of his or her duty, and concrete potential customers. A vague provision covering a person who made a single purchase years ago, or the whole customer database that the seller never knew, weakens the necessity test.

While the customer list is made a contract annex, data and secrecy security must be preserved

Showing the protected customers in an annex list can make proof easier. However, where the list contains personal data and trade secrets, a regime for access, retention, purpose of use, updating and destruction should be established. The list should be shared only to the extent necessary; sending the contract annex to a wide distribution list can itself disclose the secret that is sought to be protected.

Employee Non-Solicitation and Team Transfer Clauses

Not every recruitment is solicitation

There is a difference between a former shareholder making a direct offer to a company employee, planning a collective team move or inducing an employee to breach his or her contract, and hiring an employee on the employee’s independent application. The clause should be drafted clearly in terms of active contact, the targeted group of employees, duration and exceptions.

A key-employee definition and a general advertisement exception may be used

Instead of covering all present and future employees, the positions critical for the continuity of the transferred business, or the team the seller directly worked with, may be defined. An exception can be provided for independent applications to public advertisements, general screening by a recruitment agency, or employment relationships already ended by the employer.

The Competition Authority treats a no-hire obligation as a restriction complementary to non-competition

The 2026 Guidelines treat the seller’s obligation not to employ the employees of the undertaking subject to the transaction as similar to, or complementary to, the non-competition prohibition. The criteria of duration, scope, persons and necessity should therefore also be assessed for the employee non-solicitation clause. 3

How Should a Confidentiality and Trade Secret Clause Be Built?

Categories of confidential information should be made concrete

Stating in the contract that “everything relating to the company is confidential” is no substitute for explaining the categories of information and the exceptions. Financial models, pricing, customer contracts, technical drawings, software source code, production formulas, supply terms, personnel data, strategy and know-how can be defined as separate groups.

Publicly available and independently developed information should be left outside the scope

An exceptions regime should be established for information that becomes public, is lawfully received from a third party, is independently developed without recourse to the buyer’s confidential information, or must be disclosed by law or by order of a competent authority. For compulsory disclosure, prior notice where possible, disclosure of only the necessary part and a request for protective measures may be envisaged.

The duration of confidentiality can be differentiated according to the nature of the information

A customer price or a periodic business plan may lose its currency within a certain period; a basic formula, source code or know-how may retain its secret character for longer. The Competition Authority Guidelines state that confidentiality relating to know-how may be treated as an essential element for as long as the information remains secret. A wording of indefinite confidentiality should not be applied mechanically to every category of information. 3

The return, deletion, backup and statutory retention regime should be built together

On the closing or departure date, the return of physical and digital documents, the deletion of copies on personal devices, the closing of access to data in the cloud and backups, and the limits of the single archive copy that must be retained by law should be determined. A clause that “all data will be deleted” may conflict with retention obligations under tax, commercial, litigation-defence or personal data legislation.

Consideration, Sale Price and Contractual Balance

In a share transfer agreement, consideration is not in every case a constitutive condition of validity

The protective rationale in an employee’s non-competition obligation is not the same as in a share sale. If the seller transfers the value of the business, including the customer base and know-how, in return for the share price, the non-competition clause may be part of the economic balance of the sale. However, a separate payment for the prohibition cannot be generalised as a mandatory element of validity in every case.

A separate price or allocation of price may strengthen proportionality and proof

Explaining in the contract which part of the sale price relates to the shares, the trademark, the customer base, know-how, transition services or the non-competition obligation can strengthen the commercial justification of a long or intensive restriction and the calculation of loss in case of breach. However, because an artificial allocation of price may have tax and accounting consequences, it should be assessed together with financial experts.

The exit price in a partnership termination agreement may be significant in the specific case

In the decision of the 11th Civil Chamber of the Court of Cassation dated 27.03.2024, an exit price of TRY 85,000 was paid to the person leaving the partnership; a two-year obligation not to serve certain existing customers and a penalty clause of USD 25,000 for breach were agreed. In the decision, the making of the payment and the tying of the prohibition to a narrow customer base were influential in the finding that the contract did not restrict freedom to work disproportionately. 4

How Should Penalty Clauses and Other Sanctions Be Regulated?

The breach and the event that gives rise to the penalty must be written clearly

A penalty clause should explain which of non-competition, customer non-solicitation, employee non-solicitation or confidentiality breaches it is tied to, the distinction between a single act and a continuing breach, whether a separate penalty will be applied for each customer, the currency, the time of payment and the interest. A vague “for each breach” formulation may lead to a dispute over a claim for unlimited penalties for the same conduct.

The relationship of the penalty to cessation and excess loss must be established

Under TBK Art. 179, unless otherwise agreed, the creditor may demand performance of the obligation or the penalty; depending on the structure determined, the penalty may be added to performance. The contract should state clearly whether payment of the penalty ends the prohibition and whether the claim for cessation and for loss exceeding the penalty amount is reserved. 2

The excessive penalty and the merchant debtor distinction should not be overlooked

TBK Art. 182 gives the judge the power to reduce an excessive penalty of his or her own motion. However, under TCC Art. 22, a debtor who is a merchant cannot request reduction of the contractual penalty by alleging excessiveness under TBK Art. 182/3. This rule does not entirely remove validity reviews such as the penalty being contrary to morality, personality rights or mandatory provisions, whether the debtor is a merchant, and whether the specific sanction is of a nature to cause economic ruin. Merely writing a penalty clause at a high amount does not make an invalid underlying obligation valid. 12

Invalidity and the Judge’s Power of Limitation

General freedom of contract is subject to the limits of TBK Art. 26 and 27

The parties may determine the content of the contract freely; but mandatory provisions, morality, public policy, personality rights and impossibility form limits. If only part of a provision is invalid, the fate of the remainder of the contract is assessed within the framework of TBK Art. 27/2. A severability clause does not remove the court’s review of statutory invalidity; but it can be a tool of interpretation as to the parties’ economic purpose. 2

An excessively general prohibition in a share transfer agreement may be treated as void

In its decision dated 22.09.2014, the 11th Civil Chamber of the Court of Cassation upheld the invalidity of a share transfer agreement provision that contained no geographic limit, kept the field of activity very general and substantially impeded professional activity for three years. The Chamber did not consider it correct for the first-instance court to rely on the employee non-competition provision; but, on the axis of former Code of Obligations Art. 19-20, in its current equivalent TBK Art. 27, it ultimately accepted invalidity. 6

Judicial intervention in an employee non-competition obligation is not automatically applied to all share transfers

TBK Art. 445/2 provides that, in an employee’s non-competition obligation, the judge may limit an excessive prohibition in scope or duration. It cannot be assumed that this provision applies directly to the prohibition on a former shareholder who sells shares. The true nature of the legal relationship, the severability of the contract, the general provisions and competition law must be assessed together.

The Ancillary Restraint Test in Competition Law

Ancillary restraint check for restrictions tied to a share transfer

The general acceptance of three years in the Competition Authority Guidelines is only one criterion in the ancillary-restraint analysis under competition law; validity under private law, the capacity of the parties and the specific scope of the contract are examined separately. The granting of clearance for a merger or acquisition does not guarantee the definitive validity under private law of every clause of the contract. 3

How Is a Breach Proved?

A trade registry entry alone may not show actual competition

The establishment of a new company, the acquisition of shares or the appointment of a manager is an important indicator; but whether the prohibited activity is actually being carried on, from what date it began and the person’s role are examined separately. Passive shareholding must be distinguished from actual management, financing and customer acquisition.

Customer and employee movements should be compared with the definition in the contract

Offers made to a protected customer, contract dates, e-mail and meeting records, CRM access, invoices and bank movements, the new employer record, employee transfer dates and social media statements can show the period of the breach. Where “active solicitation” is prohibited, the defence that the customer applied spontaneously should be investigated in particular.

In an allegation of trade secrets, the information and its use must be made concrete

It must be shown which information is confidential, how the seller accessed it, in what transaction it was used and by what measures the company protected the information. In its decision dated 23.02.2017, the 11th Civil Chamber of the Court of Cassation rejected a penalty clause claim because the allegation of a secret partnership and competitive activity within the non-competition period after the share transfer could not be proved by legal evidence. 7

The manner in which evidence is obtained and preserved is also important

Corporate e-mail and system logs should be protected within the framework of the company’s authority and policy. Unauthorised access to a personal account, unlawful inspection of a private device or the use of incomplete screenshots damages evidentiary weight. A notarial record, evidence preservation under HMK Art. 400 and expert review may be considered according to the risk of loss of the evidence and its technical nature.

Principles for Contract Design Emerging from Court of Cassation Practice

Selected decisions and their effect on contract design

Contract Drafting Checklist

1. The party’s capacity should be determined: the roles of seller, departing shareholder, manager, employee, consultant and affiliated company should be written separately.
2. The economic value being protected should be explained: customer base, commercial reputation, trademark, know-how, team or distribution network.
3. The prohibited activity should be defined in a limited and understandable way by product / service, role and forms of direct and indirect participation.
4. The geographic area and duration should be tied to the company’s real activity and the transition need; the justification should be preserved in the transaction file.
5. In the customer non-solicitation clause, the protected customer group and the distinction between active contact, spontaneous application and general advertising should be made.
6. In the employee non-solicitation clause, the key-employee, general advertisement and independent application exceptions should be regulated.
7. Categories of confidential information, exceptions, purpose of use, compulsory disclosure, return / deletion and statutory retention rules should be established.
8. The relationship of the price or consideration to the economic balance of the prohibition should be explained; tax and accounting effects should be examined separately.
9. To which breach, how many times and in what amount the penalty clause will apply, and the relationship of cessation, performance and excess loss, should be written.
10. Provisions on evidence, notice, audit, injunction, governing law, jurisdiction or arbitration, and mediation should be regulated according to the transaction structure.
11. The ancillary restraint test under competition law and, if necessary, merger and acquisition clearance should be carried out separately.
12. The provisions should be harmonised so as not to conflict with the articles of association, the shareholders’ agreement, the employment contract and the closing documents.

The Route to Follow in a Dispute

First, the contract, the capacity and the period of the breach are matched

The signature and closing date of the contract, the completion of the share transfer, the end of the management role, the end of the employment relationship and the start of the prohibition period should be determined separately. Asserting claims for the penalty clause, unfair competition and manager liability together, without explaining which provision and which capacity the breach rests on, can create procedural and evidentiary confusion.

Injunction and evidence preservation are planned according to the continuing breach

If customer contacts or the use of confidential information continue, an interim injunction can be considered to stop the continuing activity, data use and advertisements. If digital records are at risk of deletion or alteration, evidence preservation and expert review become important. The injunction request should not be framed so broadly that it disproportionately stops all economic activity.

Mediation and the jurisdiction review are made according to the structure of the claim

If monetary claims such as penalty clauses and damages are commercial cases, mediation as a condition precedent to suit comes into play. If the party to the contract is also an employee, whether the dispute arises from the shareholding or the employment relationship is decisive for jurisdiction. Even if provisions of the share transfer, the partnership termination and the employment contract are in a single file, the legal ground of each claim should be assessed separately.

Conclusion

The strength of non-competition, confidentiality and customer non-solicitation clauses in share transfer and shareholder exit agreements comes not from writing the prohibition as broadly as possible, but from making concrete its connection with the transferred economic value, its scope and its method of application. A valid arrangement separates the person’s true capacity, the prohibited activity and customer base, the duration, the geography, the confidential information, the consideration and the sanction from one another. The rules on an employee’s non-competition obligation do not apply automatically to a person who sells shares or leaves the company; conversely, general limits of validity, personality rights and competition law cannot be ignored. Prohibitions that are too broad or vague, instead of being strengthened by a high penalty clause, acquire a risk of invalidity. Proportionality and evidence planning carried out while the contract is being prepared provides far more effective protection than relying only on an allegation that “he competed” after a dispute arises.

Frequently Asked Questions

Can a non-competition prohibition be imposed on a former shareholder who sells his or her shares?

Yes. A proportionate non-competition obligation may be regulated to protect the passing to the buyer of the transferred customer base, commercial reputation or know-how. The duration, activity, geography and personal scope must be connected with the main transaction.

Can a non-competition prohibition in a share transfer agreement last at most two years?

No. The two-year general upper limit in TBK Art. 445 relates to an employee’s non-competition obligation. Share transfer and shareholder exit agreements may rest on a different legal basis. The competition law Guidelines regard periods not exceeding three years in certain acquisitions as generally reasonable; but this too is not an automatic rule of validity under private law for every case.

Is a non-competition prohibition exceeding three years always invalid?

No; but the burden of justification becomes heavier. Customer dependence and the nature of the transferred know-how may make a longer period necessary. Conversely, a long period combined with a broad activity and geography may give rise to a risk of invalidity and of competition law problems.

Is a non-competition prohibition valid without a geographic area being written?

The specific contract and the transaction context are assessed; but failing to determine any geographic limit, or keeping it far wider than the company’s actual area, increases the risk of invalidity. If the field of activity is digital or international, the limit must be justified by the definition of customers and market.

Is it a breach if the customer comes to the former shareholder spontaneously?

It depends on the wording of the contract. Active customer solicitation and a customer’s independent application can be regulated differently. An absolute provision that “he or she may not provide any service” requires a stronger justification in terms of customer freedom and proportionality.

Can a confidentiality obligation be indefinite?

Know-how or a genuine trade secret may receive long-term protection for as long as it retains its character as a secret. However, information that is public, has lost its currency or has been independently developed should not be brought within indefinite confidentiality. Different periods can be used according to the categories of information.

Is it mandatory to make a separate payment for a non-competition prohibition?

In a share transfer or shareholder exit relationship, a separate payment is not in every case a constitutive condition of validity. However, explaining the connection of the sale price or exit payment with the economic balance of the prohibition may be important in terms of proportionality and proof.

If the penalty clause is very high, will the court reduce it?

TBK Art. 182 regulates the reduction of an excessive penalty. However, for a debtor who is a merchant, TCC Art. 22 limits a request for reduction based merely on an allegation of excessiveness. The invalidity of the underlying provision, personality rights, morality and economic ruin are assessed separately.

Can both a penalty clause and damages be claimed from a person who breaches a non-competition prohibition?

It depends on the contractual arrangement. Whether the penalty is in addition to performance, whether payment of the penalty ends the prohibition, and whether loss exceeding the penalty amount is reserved must be written clearly. Double recovery for the same loss cannot be made.

Which documents are important for proof in a breach of a non-competition prohibition?

The trade registry and share records, new company contracts, customer quotations, e-mail and CRM records, employee transfers, invoices, bank movements, advertisements and witness statements may be assessed together. A contract clause alone does not prove an actual breach.

Sources

1. Turkish Commercial Code No. 6102 — Art. 4, 5/A, 22, 54-63, 369, 396, 553, 613, 626. Source

2. Turkish Code of Obligations No. 6098 — Art. 26-27, 179-182, 444-447. Source

3. Competition Authority, Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions — 2026 update, paras. 45-58. Source

4. Court of Cassation 11th Civil Chamber, E.2022/5740, K.2024/2501, dated 27.03.2024 — Two years, certain customers, exit price and penalty clause in a partnership termination agreement. Source

5. Court of Cassation 11th Civil Chamber, E.2012/4951, K.2013/21449, dated 26.11.2013 — Fifteen-year share transfer non-competition prohibition, necessity and proof. Source

6. Court of Cassation 11th Civil Chamber, E.2014/7043, K.2014/14263, dated 22.09.2014 — Invalidity of a prohibition of vague / broad geographic and activity scope. Source

7. Court of Cassation 11th Civil Chamber, E.2016/1891, K.2017/1053, dated 23.02.2017 — Proof of actual breach by legal evidence in a share transfer non-competition prohibition. Source

8. Court of Cassation 11th Civil Chamber, E.2014/18853, K.2015/5738, dated 24.04.2015 — Allegations of competition, secrecy, employee solicitation and distributorship after a share transfer. The citation has been verified; there is no direct link record.