Safeguarding Management Control Through Preferred Shares: Group A and B Share Structures in Turkish Companies

As companies expand and bring in new shareholders, one of the biggest challenges for founding partners or controlling groups is preserving their authority over key business decisions. Turkish company law offers an effective solution by allowing the division of shares into different classes, such as Group A and Group B, each with distinct rights and privileges.

This structure protects management control in the long term, regardless of share transfers or ownership changes. At Bayraktar Attorneys, we frequently advise clients (particularly foreign investors and founders) on how to use share structuring and privileged rights to secure board control, veto powers, and strategic direction.

Structuring Group A and Group B Shares in Holding Companies

A reliable way to retain control in a holding company is by establishing different share groups with clearly defined privileges in the articles of association. This commonly involves forming at least two groups of shares—Group A and Group B—each assigned specific authorities reflecting their role in the company.

Key Tools for Protecting Control

• Preferred Voting Rights: Group A shares can be granted exclusive rights to appoint all members of the board of directors. Even if Group A shareholders own only 30 percent of the company, they can still control the board and direct decision-making.
• Special Approval Requirements: Certain decisions, such as mergers, share transfers, or changes in business operations, can be made subject to the approval of Group A or B shareholders. This prevents a simple majority from taking actions that affect control.
• Veto Powers: The articles of association may provide certain share groups with the ability to block major decisions unless their approval is obtained in writing. This is often used to protect founders or original investors.
• Qualified Majority Clauses: Rather than allowing a simple majority to dictate important decisions, the company may require a qualified majority that includes approval from privileged share groups.

Strategic Uses of Privileged Shares

Preferred shares can be critical in aligning management and ownership goals, especially in companies with multiple stakeholders. Typical use cases include:

• Preventing Hostile Takeovers: Privileged shares can block mergers or acquisitions not supported by founders or core stakeholders.
• Approving Capital Expenditures: Founders can retain the right to approve large investments or financial commitments.
• Restricting Share Transfers: Privileged shares can require approval before shares are transferred to ensure the incoming shareholder aligns with company values.
• Controlling Business Model Changes: Share groups can be given the right to approve any shift in the company's industry or long-term business focus.

All of these protections must be documented in the company's articles of association. If they are not legally registered, they will not be enforceable under Turkish law. It is worth noting that some arrangements can be placed in a shareholders' agreement rather than the articles of association, with important differences in enforceability.

Maintaining Control Even After Share Transfers

One of the most valuable aspects of using Group A and B structuring is the ability to preserve control over management, even if the founding partner sells most of their shares.

For instance, even if the founder sells 75 percent of their shares, they can still control the board of directors and strategic decisions if the articles of association assign these powers to Group A shares. This legal framework is often used in:

• Joint ventures with foreign investors,
• Family companies preparing for public offerings,
• Startups raising external funding,
• Holding companies with multiple subsidiaries.

Because privileged shares can restrict transfers, it is also important to understand what happens when a share transfer is not approved by the company.

Legal Implementation in Türkiye

To establish such structures, share class privileges must be clearly defined in the articles of association and registered with the Turkish Trade Registry. At Bayraktar Attorneys, we provide full legal assistance in:

• Drafting compliant and enforceable articles of association,
• Structuring board authority and veto powers,
• Preparing shareholder agreements aligned with share privileges,
• Advising on regulatory limitations under the Turkish Commercial Code and competition laws.

We also assist international clients in adapting this strategy to their cross-border investment goals in Türkiye. Choosing the right entity type, such as an Anonim Şirket or a Limited Şirket, is an important first step in this process.

Conclusion

Dividing shares into classes like Group A and Group B is a powerful legal mechanism for maintaining control over management and decision-making in Turkish companies. It is especially effective for founders and early investors who want to protect their vision while allowing new shareholders to participate in ownership.

If you are considering this structure for your company or investment in Türkiye, our team at Bayraktar Attorneys can help you design and implement the most effective legal model tailored to your goals.