A Share Transfer Transaction Is Not the Same as a Share Purchase Agreement
The distinction between the obligational contract and the act of disposition
The share purchase agreement is the obligational transaction that regulates the seller's obligation to transfer particular shares on particular terms and the buyer's obligation to pay the price. For ownership of the share to pass, depending on the type of company and the nature of the share, assignment, endorsement, delivery, notary, general assembly approval, share ledger and trade registry procedures may also be required.
The signing of a contract does not mean that the closing conditions have been fulfilled or that ownership of the shares has passed. The concepts of "signing" and "closing" must be clearly separated in the contract.
Share transfer versus business or asset transfer
In a share transfer, the target company remains the same legal entity. The company's contracts and debts as a rule remain with the company; only the ownership structure changes. In an asset or business transfer, by contrast, which assets, contracts, employees, permits and debts will be transferred is determined separately. This article focuses on share transfers; an asset transfer may give rise to different liability and permit regimes.
Who is liable for old debts?
After a share transfer, the direct debtor of a tax, SGK, employee, environmental or contractual debt is in most cases the target company. Since the buyer has taken over the shares of the company, the buyer is exposed to the economic effect of these debts. The seller's liability toward the buyer is determined by the representations, warranties, specific indemnities and price adjustment in the share purchase agreement and by the general provisions of law.
Pre-Transaction Documents and the Negotiation Process
Letter of intent and preliminary protocol
A letter of intent or preliminary protocol sets out the basic economic terms of the transaction, the intended process and the negotiation framework. Which provisions of the document are binding must be written clearly. In particular, confidentiality, exclusivity, costs, governing law and dispute resolution may be binding, while valuation and the final obligation to purchase may be non-binding.
Confidentiality agreement
Because financial statements, customer data, employee records, technology and trade secrets will be disclosed to the buyer, a confidentiality agreement must be signed. For the transfer of sensitive information to a buyer candidate that is a competitor, a clean team, data room access levels and the limits of competition law are also planned.
Exclusivity and withdrawal from the transaction
The seller may agree not to negotiate with other buyers for a certain period. The exclusivity period, its start, its scope, the consequence of breach and the conditions of extension must be specified. A break fee or reimbursement of costs is assessed separately in terms of penalty clauses and the rule of good faith.
Legal Due Diligence and Its Transfer into the Contract
The function of legal due diligence
Legal due diligence identifies the target company's corporate structure, key contracts, debts, litigation, employees, permits, intellectual property rights and compliance risks. The purpose of the review is not merely to produce a "list of problems" but to determine by which mechanism each finding will be managed in the contract.
Into which contractual instrument does a due diligence finding turn?
| Finding | Appropriate contractual instrument |
|---|---|
| A deficiency that can be remedied before closing | Condition precedent to closing |
| A specific and calculable past risk | Specific indemnity undertaking |
| An unknown general risk | Representations and warranties |
| A balance sheet item affecting company value | Price adjustment |
| A post-closing action under the seller's control | Post-closing obligation |
| A critical uncertainty | Retention of the price, escrow or security |
The limits of the review
The absence of a document in the data room does not mean the absence of a risk. The review period, the materiality threshold, the sampling method and the scope of the management interviews must be explained in the report. The buyer's having conducted a review does not automatically render the seller's express representations and warranties ineffective; the knowledge and waiver provisions in the contract are decisive.
What Are Representations and Warranties?
The function of representations and warranties
Representations and warranties (beyan ve tekeffül) are the seller's contractual undertaking that certain facts about the shares and the target company are true. In Turkish law, the consequence of this concept is determined not merely by the use of the foreign term but by the text of the contract, the legal characterization, the parties' intention and the applicable provisions of law.
Fundamental warranties
Fundamental warranties generally cover the following matters:
- That the seller is the owner of the shares and is authorized to transfer them,
- That there is no pledge, attachment or third-party right over the shares,
- That the company has been duly incorporated and is active,
- That the contract is valid and binding on the seller
These representations may be subject to a higher liability cap and a longer period than business warranties.
Business warranties
Business warranties may be prepared under the following headings:
- Financial statements and accounting records,
- Tax and SGK liabilities,
- Key contracts and change-of-control provisions,
- Litigation, enforcement proceedings and administrative investigations,
- Employees and labor receivables,
- Permits, authorizations and licenses,
- Intellectual property and software rights,
- Protection of personal data,
- Environmental and sector regulations,
- Real estate and assets,
- Insurance,
- Anti-corruption and compliance,
- Related-party transactions.
Knowledge standards
A limitation such as "to the seller's knowledge" remains uncertain unless it is stated whose knowledge as natural persons is meant, whether actual knowledge or knowledge including a duty of inquiry, and knowledge as of which date. Whether the seller must make reasonable inquiry should be written clearly.
The Disclosure Letter and Notification of Exceptions
General disclosure and specific disclosure
The disclosure letter sets out the matters that constitute exceptions to the representations and warranties. General disclosures may be public registers or blanket references to the entire data room; specific disclosures clearly show a particular fact against a particular representation.
Sufficiency of disclosure
The fact that a risk appears within a file in the data room may not mean that the seller has disclosed it adequately. The nature and place of the disclosure, the "fair disclosure" standard in the contract and whether the buyer had enough detail to understand the risk are examined.
Last-minute disclosures
Disclosures made very close to closing may remove the buyer's ability to assess and price. The contract should regulate the delivery date of the disclosure letter, the procedure for amendment and whether a new disclosure gives the buyer a right of termination, price adjustment or waiver.
Specific Indemnity Undertakings
A known risk should be addressed by a specific indemnity, not a representation
For known risks such as a tax audit, a particular lawsuit, environmental pollution, a lack of permit or an employee receivable, agreeing a specific indemnity instead of waiting for a breach of a general representation provides a clearer allocation of risk.
Conditions of the indemnity
In a specific indemnity, the following:
- The triggering event,
- The loss and expenses to be covered,
- The management of third-party claims,
- The authority to defend and settle,
- Tax effect and insurance recovery,
- Set-off,
- The claim period,
- Security
must be determined.
The Court of Cassation's approach to contractual risk allocation
In its decision of the 11th Civil Chamber of the Court of Cassation dated 18.02.2010, E.2008/5616, K.2010/1880, given that the share transfer agreement contained a special recourse provision for debts not appearing in the transfer balance sheet and a waiver arrangement of the parties, it was held incorrect for the court to reach a result without assessing this contractual allocation of risk.
In the event that was the subject of the decision of the 11th Civil Chamber of the Court of Cassation dated 04.06.2025, E.2024/5530, K.2025/4033, a contract provision placing on the seller the tax, SGK, employee and other debts that arose later and related to the pre-transfer period was taken as the basis in a dispute over the price receivable and set-off.
Limits on Indemnity: De Minimis, Basket and Cap
De minimis
De minimis is the minimum amount that a single claim must exceed to be taken into account. It prevents very small claims from increasing the cost of the transaction. Whether interrelated claims will be aggregated should be written separately.
Basket
A basket is the threshold that the total of certain claims must reach. Whether, once the threshold is exceeded, only the excess or the whole amount will be paid must be specified clearly in the contract.
Cap
A cap is the upper limit of the seller's total liability. Different caps may be provided for fundamental warranties, tax, specific indemnities, intent, fraud and gross negligence. Under mandatory law, provisions that exclude liability for intent or gross negligence carry a risk of invalidity.
Preventing double recovery
The same loss should not be compensated twice, in both a price adjustment and an indemnity. Insurance payments, tax benefits, recovery from third parties and the duty to mitigate loss are regulated in the contract.
Claim Periods and Limitation
Contractual notice period
The parties may agree by what date a claim notice must be made for particular representations. The content of the notice, the estimated loss, the basis and the documents must be stated clearly.
A contractual period is not the same as the statutory limitation period
A contractual claim period, referred to as a "survival period", may not be the same as the statutory limitation period or the preclusive period. Whether a provision regulates a condition of liability, a duty of notification or the time for suing is determined from the text and the applicable law. It should not be assumed that the parties can in every case alter, by contract, the mandatory time limits of the law.
Tax and fundamental warranties
Longer periods may be provided for tax risks and fundamental warranties. However, the tax administration's assessment and audit periods and the buyer's contractual claim period against the seller should not be confused.
Purchase Price and Price Adjustment
Fixed price
A fixed price is simple and predictable; however, it may not sufficiently reflect changes in the company's financial position between signing and closing.
Completion accounts
Completion accounts are based on comparing net debt, cash and working capital on the closing date with target values. The accounting policy, a sample calculation, dispute resolution and an independent expert mechanism should be added to the contract.
The locked-box method
In the locked-box method, the price is determined on the value at a past balance sheet date; value leaving to the seller or related persons between that date and closing is prohibited as "leakage". Permitted payments must be listed clearly.
Earn-out
An earn-out is additional consideration linked to post-closing performance. If the calculation criterion, management policy, budget, intra-group transactions, audit right and the seller's participation in the process are not determined, it causes serious disputes.
Securing the Price
Escrow account
Escrow is the holding of part of the price in an independent account for a certain period. The release conditions of the account, the effect of claims, interest and bank charges should be regulated.
Retention of the price
A holdback is the buyer's not paying part of the price until certain risks have ended. Because it creates credit and collection risk for the seller, the security, interest and set-off conditions should be clear.
Bank guarantee, surety and guarantee
Where the seller is a special-purpose company or a foreign legal entity, a parent company guarantee, a bank letter of guarantee or other security may be considered. Which claims the security covers and its compatibility with the indemnity regime should be checked.
Warranty and indemnity insurance
Warranty and indemnity insurance may be used on the seller's or the buyer's side in certain transactions. Policy exclusions, known risks, the deductible and the contract provisions must be examined together; insurance does not eliminate all risks.
Conditions Precedent between Signing and Closing
The Competition Authority and sector permits
If the transaction exceeds the current merger and acquisition thresholds, the approval of the Competition Board may be required. In banking, insurance, energy, media, telecommunications, payment services and other regulated sectors, authority approval may also exist. The thresholds and procedures must be checked against the legislation in force on the date of the transaction.
Company and third-party approvals
The articles of association, a shareholders' agreement, a loan agreement or an important customer/supplier contract may make a share transfer subject to consent. "Change of control" provisions create a risk of contract termination or approval separate from the legal transfer of the share.
Remedying deficiencies
Before closing, the following:
- Correction of corporate records,
- Renewal of permits,
- Payment of certain debts,
- Closing of related-party accounts,
- Arrangements for managers and employees,
- Completion of intellectual property transfers
may be agreed as conditions precedent.
Long-stop date and termination
If the conditions precedent do not occur by a certain date, a long-stop date is set so that the parties can exit the contract. Which party caused the delay and the duty to cooperate in the regulatory approval process should be regulated separately.
Closing Actions
Closing is a simultaneous transaction plan
At closing, it must be ensured that money, shares and corporate control change hands at the same time or in a secure sequence. An approach of "first pay the money, then we will complete the documents" creates serious risk.
Closing documents
Depending on the transaction, the following documents may be prepared:
- Share transfer documents, endorsements and share certificates,
- Notarized limited liability company share transfer agreement,
- General assembly or board of directors approvals,
- Share ledger entry,
- Trade registry applications,
- Resignation and appointment documents for managers,
- Signature circulars and powers of attorney,
- Bank instructions,
- Debt repayment letters,
- Release documents for pledges and security,
- Disclosure letter,
- Closing certificate,
- Price payment and escrow documents.
Closing minutes
The closing minutes show which document was delivered when, how the conditions precedent were satisfied, how the price was paid and which actions were left to after closing. It is an important means of proof in a later dispute.
Post-Closing Obligations
Completion of registers and records
The share ledger, trade registry, MERSİS, bank authorities, e-signature, tax office and sector records must be updated. If, although the transfer has been completed, digital and banking access remains with former managers, an operational risk arises.
Transitional services
The seller may provide accounting, IT, personnel or customer transition support for a certain period. The transitional services agreement should regulate the service level, the fee, the period, data security and termination.
Non-competition and non-solicitation of employees/customers
To protect the value of the business transferred, proportionate restrictions may be imposed on the seller as to period, place, activity and persons. These provisions must not remove economic freedom unnecessarily and must not exceed the limit of an ancillary restraint necessary for the transaction under competition law.
How Is a Breach Claim Asserted?
Content of the notice
The claim notice should state the representation breached, the event, the loss, the estimated amount, any third-party claim and the available documents. A general notice such as "a debt has emerged in the company" may not satisfy the procedure in the contract.
Management of third-party claims
In third-party processes such as a tax audit, an employee lawsuit or a customer claim, who will conduct the defense, the authority to settle and information sharing should be determined. While control is given to the seller, the buyer's right to protect the company should be reserved.
Calculation of loss
The loss may consist of a payment made by the company, a loss of value, defense costs, tax and penalties, a payment to a third party or an effect on the closing price. A decrease in share value and a payment made by the company should not be counted twice.
Buyer's knowledge and waiver
The contract should state clearly whether matters known to the buyer will affect the right to claim. In its decision of the 11th Civil Chamber of the Court of Cassation dated 13.02.2019, E.2018/3053, K.2019/1100, an express contract provision that the buyer took over knowing the situation of the companies and waived claims of defect/eviction was influential in the assessment of liability in the specific case. By contrast, vague general waivers should not be accepted as eliminating concealed risks in every case.
Dispute Resolution and Governing Law
Court or arbitration
In cross-border and high-value transactions, arbitration may offer the advantages of confidentiality and expertise. However, the arbitrability of the share ledger, the trade registry, the annulment of general assembly resolutions or certain corporate matters affecting third parties should be examined separately.
Governing law
The choice of foreign law does not eliminate the mandatory provisions of Turkish company law or the registration/corporate actions to be carried out in Türkiye. Contract law should be distinguished from the company's incorporation and share transfer regime.
Language and document precedence
In a multilingual contract, which language prevails should be determined. The translation of tax, permit and employee documents, their legal meaning and the integrity of the documents should be checked.
Pre-Closing Checklist for the Buyer and the Seller
For the buyer
- Ownership of the shares and encumbrances are verified.
- Legal due diligence is completed.
- The findings are transferred into the representations, specific indemnities and price mechanism.
- Regulatory and contractual approvals are obtained.
- The price and security mechanism is made operational.
- The closing documents are tied to a simultaneous delivery plan.
- The transfer of management, banking and digital access is prepared.
- Post-closing notifications are scheduled.
For the seller
- The accuracy of the representations and the scope of knowledge are checked.
- The disclosure letter is prepared in a specific and traceable manner.
- Liability limits and exceptions are negotiated.
- Known risks are clarified through a specific indemnity.
- Security of collection of the price is ensured.
- Objective criteria are set to prevent the buyer from abusing the conditions precedent to closing.
- The claim notice and defense procedure is regulated.
- Transitional services and non-compete restrictions are set up proportionately.
Conclusion
The success of a company acquisition agreement depends not only on the transfer of the shares but on the allocation, in the contract, of past and future risks to the right person and by the right instrument. Representations and warranties for unknown risks, specific indemnities for known risks, price adjustment for balance sheet movements, escrow or other security for collection and liability, together with the system of conditions precedent and documents that makes closing workable, must be built together. When the share transfer is completed, the debts of the target company do not disappear. For this reason, legal due diligence, contract design and the closing process should be managed as a single chain of transactions.
Frequently Asked Questions
What are representations and warranties in a share transfer agreement?
They are the seller's contractual undertaking that certain facts about the shares and the target company are true. The consequence of a breach is determined according to the text of the contract, the applicable law and the indemnity provisions.
Is the seller liable for the company's old debts?
The direct debtor of the debts is in most cases the target company. The seller's liability toward the buyer depends on the representations, specific indemnities and price adjustment in the share purchase agreement and on the general provisions of law.
If legal due diligence has been done, are representations still needed?
Yes. The review identifies risks from the available documents; representations and warranties create contractual liability for gaps in information and unknown risks. Neither replaces the other.
What is a disclosure letter for?
The disclosure letter sets out the particular facts that constitute exceptions to the seller's representations. The disclosure must be sufficient and specific to the relevant representation.
What do de minimis, basket and cap mean?
De minimis refers to the single-claim threshold, basket to the total-claim threshold and cap to the upper limit of the seller's total liability. Which claims they apply to, and the exceptions, must be written clearly in the contract.
What is the difference between a locked box and completion accounts?
A locked box is based on the value at a past balance sheet date and prohibits value leakage. Completion accounts adjust the price afterwards according to net debt, cash and working capital on the closing date.
How is the price secured in a company sale?
An escrow account, retention of the price, a bank guarantee, a parent company guarantee, a pledge or security for installment payments may be used. The instrument should be chosen according to the parties' credit risk and the indemnity system.
Is Competition Board approval required in every company acquisition?
No. Approval may be required if the transaction meets the turnover thresholds in force and the conditions of change of control. The current thresholds and special sector rules should be checked on the date of signing.
Must signing and closing take place on the same day?
No. If there is regulatory approval, financing or another condition precedent, there may be a period between signing and closing. Even in a same-day closing, the order of documents and payment should be planned.
Can the seller's liability be completely excluded by contract?
The parties may regulate liability to a significant extent; however, the limits of intent, gross negligence and mandatory law must be observed. Vague waivers and concealed risks are assessed separately.
Sources
1 — Turkish Code of Obligations No. 6098, provisions on the sales contract, liability for defects and eviction, and general liability. Link to source
2 — Turkish Commercial Code No. 6102, provisions on share transfers in joint-stock and limited liability companies, company bodies and the trade registry. Link to source
3 — Law No. 4054 on the Protection of Competition and the current Competition Board regulations on mergers and acquisitions. Link to source
4 — Personal Data Protection Law No. 6698 and the current regulations on cross-border data transfer. Link to source
5 — Court of Cassation 11th Civil Chamber, E.2019/4783, K.2021/4461, dated 26.05.2021. Link to source
6 — Court of Cassation 11th Civil Chamber, E.2008/5616, K.2010/1880, dated 18.02.2010. Link to source
7 — Court of Cassation 11th Civil Chamber, E.2024/5530, K.2025/4033, dated 04.06.2025. Link to source
8 — Court of Cassation 11th Civil Chamber, E.2018/3053, K.2019/1100, dated 13.02.2019. Link to source