Company Sells Products to a Related Business Below Market Price in Turkey: Foreign Shareholder Rights 2026 Updated Guide

A Turkish company sells goods to a related business below market value. Learn how foreign shareholders can challenge related-party transactions, obtain company records, claim damages and protect their investment.

A Turkish company may suffer substantial losses when its directors, controlling shareholders or managers cause it to sell products to another related business at prices significantly below ordinary market conditions. For a foreign minority shareholder, the problem can be particularly serious when the purchasing company is controlled by the majority shareholder, a director, a family member or another entity within the same commercial group. Such transactions may transfer profit away from the company in which the foreign investor holds shares and into another business controlled by the persons directing the transaction.

A below-market related-party sale is not automatically unlawful merely because the parties are connected. The central questions are whether the transaction has a legitimate commercial basis, whether the company received appropriate consideration, whether directors and controlling shareholders complied with their duties, whether corporate approval requirements were respected and whether the transaction caused a measurable loss to the company or its shareholders.

How Does a Below-Market Related-Party Sale Harm Foreign Shareholders?

Consider a Turkish company that could ordinarily sell a product for TRY 1,000 but repeatedly sells the same product to a company controlled by its majority shareholder for TRY 600.

The related company may then resell the product at the ordinary market price and retain the economic benefit.

The first company records lower revenue and potentially lower profits. Consequently, its distributable profit, company value and potentially the economic value of the minority shareholder’s investment may decrease.

The issue can therefore amount to much more than an ordinary pricing decision.

Are Transactions Between Related Companies Prohibited?

No. Turkish companies may conduct business with shareholders, group companies and other related entities.

The existence of a relationship does not itself establish misconduct.

The legal concern arises when the terms of the transaction cannot be justified commercially, corporate decision-makers breach their duties, the company suffers loss, or controlling shareholders use their position in a manner that improperly benefits themselves or another related entity.

What Is a Related Business?

The relationship can arise in many forms. The purchasing business might be another company controlled by the majority shareholder, a subsidiary, parent company, sister company, company owned by a director or a business effectively controlled by persons connected with those managing the seller.

Foreign investors should therefore investigate the actual ownership and control structure rather than relying solely on company names.

Is Selling Below Market Price Automatically Illegal?

Not necessarily.

There may be legitimate reasons for discounted pricing, including volume purchases, long-term supply commitments, advance payments, lower distribution costs, inventory liquidation, strategic market entry or differences in contractual risk.

The proper comparison is therefore not simply between two invoice prices.

The commercial circumstances of the transactions must also be compared.

How Can a Foreign Shareholder Determine Whether the Price Is Unfair?

A strong analysis usually begins with comparable transactions.

Relevant evidence may include sales to independent customers, distributor agreements, price lists, quotations, invoices, production costs, margins, quantities, payment terms, rebates and prevailing market prices.

If independent customers purchase the same product for substantially more under comparable conditions, management may need to explain the difference.

Examine the Entire Transaction, Not Just the Invoice

A low nominal price might be offset by other commercial benefits.

Conversely, an apparently normal invoice price may hide indirect benefits through rebates, credit notes, free products, unusually long payment periods or subsequent transfers.

The complete economic relationship should therefore be examined.

Repeated Transactions Are Particularly Important

A single discounted transaction can sometimes be explained by urgent commercial circumstances.

A systematic pattern of below-market sales to a company connected with management or the controlling shareholder may raise substantially greater concerns.

Prepare a transaction history rather than examining one invoice in isolation.

Compare Sales to Independent Customers

One of the most useful forms of evidence can be the company’s own third-party sales.

Compare product, quantity, date, geography, payment conditions, delivery terms and customer profile.

This can provide a more realistic benchmark than an abstract market-price estimate.

Production Costs Should Also Be Reviewed

Determine whether the company is selling at a normal margin, minimal margin or actual loss.

Repeated sales below production cost to a related entity can require particularly careful investigation where no convincing commercial explanation exists.

Who Actually Benefits From the Transaction?

Trace the ownership of the purchasing company.

If the same controlling shareholder who influences the seller also owns the purchaser, the economic incentive behind the transaction becomes important.

The analysis should remain evidence-based rather than assuming misconduct solely from the relationship.

Directors and Managers Have Corporate Responsibilities

Members of management bodies are not generally free to treat company assets as their personal property.

Where company decision-makers approve transactions damaging the company contrary to their applicable statutory or corporate duties, questions of liability may arise.

Controlling Shareholder Conduct May Also Be Relevant

Where the company belongs to a corporate group or is subject to another company’s control, Turkish company-law rules concerning control relationships can become important.

A controlling position should not be used in a manner that unlawfully causes losses to the controlled company without the consequences required under the applicable corporate-law framework.

Foreign Shareholders Have Rights Even If They Are Minorities

A foreign shareholder does not lose shareholder protection merely because they hold a minority interest or reside outside Turkey.

The precise rights available depend on the company’s legal form, shareholding percentage, articles of association and facts of the dispute.

Start by Obtaining Corporate Information

The shareholder should determine who approved the transaction, when it was approved, what commercial justification was recorded and whether management considered alternative customers or market prices.

Corporate records can become central evidence.

Review Board Decisions

If the transaction was considered by the board or management body, examine the relevant decision and supporting documents.

A decision containing no pricing analysis despite a substantial related-party discount may require further investigation.

Review General Assembly Materials

Related-party transactions may also affect annual financial statements, profit distribution, management release and other matters considered by shareholders.

Foreign shareholders should carefully review meeting materials rather than automatically approving management proposals.

Exercise Information and Inspection Rights

Depending on the company’s form and circumstances, shareholders may have statutory rights to request information and inspect relevant corporate matters.

These rights can be particularly valuable when management controls most of the company’s internal documentation.

Ask Specific Questions

Broad accusations are usually less useful than targeted requests.

For example: Why was this customer granted a 35% discount? Who owns the customer? Were independent quotations obtained? What was the company’s production cost? What payment terms were granted? Did the purchaser subsequently resell the goods?

Specific questions can produce evidence useful in later proceedings.

Preserve Financial Statements

Compare revenue, gross margins and profitability before and after the related-party arrangement began.

A significant deterioration corresponding with increasing related-party sales can warrant further examination.

Review Accounts Receivable

Below-market pricing may not be the only problem.

The related company may also receive unusually long payment periods or may simply fail to pay invoices on time.

The economic loss should therefore include both price and collection risk.

Look for Credit Notes and Rebates

Management may invoice goods at apparently ordinary prices and subsequently reduce the amount through rebates or credit notes.

Review the complete accounting trail.

Examine Inventory Movements

Inventory records can help determine the quantity of goods transferred to the related business and whether invoice quantities correspond with actual warehouse movements.

This becomes especially important where the shareholder suspects undisclosed transfers.

Bank Records Can Be Important

Where legally obtainable, payment records can help establish whether the related purchaser actually paid the invoiced amounts and when payment occurred.

An invoice alone does not establish that the company received the money.

Independent Valuation or Expert Analysis May Be Necessary

For specialized products, determining market value can require industry expertise.

An independent expert may compare market prices, margins, comparable transactions and commercial conditions to determine whether the transaction departed materially from ordinary market practice.

Transfer Pricing Issues May Also Arise

Related-party pricing can have tax consequences separate from shareholder claims.

A transaction may therefore create simultaneous corporate-law, accounting and tax issues.

The existence of a tax issue does not automatically determine whether shareholders have a civil or corporate claim, and each legal basis should be examined separately.

Can the Foreign Shareholder Challenge the Transaction?

Potentially.

The appropriate remedy depends on how the transaction was authorized, the company’s legal form, the shareholder’s percentage, whether a corporate resolution exists and whether the company or shareholder suffered legally recoverable loss.

Possible strategies may involve challenging corporate decisions, seeking information, pursuing liability claims or using other shareholder-protection mechanisms.

Can a General Assembly Resolution Be Challenged?

If the disputed arrangement is connected with a general assembly resolution, the legality of that resolution and available challenge mechanisms should be examined promptly.

Procedural deadlines can be critical.

Management Liability May Arise

If directors or managers breach duties imposed by law or the company’s constitutional documents and cause damage, liability claims may potentially arise depending on the circumstances.

The claimant must still establish the relevant breach, damage and causal connection.

Who Owns the Damages Claim?

This is an important distinction.

If company assets were transferred at an undervalue, the primary economic loss may have been suffered directly by the company. The reduction in the shareholder’s investment value may be a consequence of that corporate loss.

The correct claimant and remedy should therefore be identified before proceedings begin.

Can the Foreign Shareholder Seek an Injunction?

Where below-market transfers are continuing and substantial assets are at risk, interim judicial protection may need to be evaluated.

The applicable requirements depend on the remedy requested and evidence available.

Urgent action can be particularly important where repeated transactions could make eventual recovery difficult.

What If Assets Are Being Shifted to Another Group Company?

Trace the flow of goods and money.

If the purchasing company subsequently sells the goods, determine where the resale proceeds go and whether assets are being accumulated outside the company in which the foreign investor owns shares.

This evidence may become important in establishing the economic structure of the alleged value transfer.

What If the Majority Shareholder Controls Both Companies?

Common control does not eliminate the need to protect the interests of each company and comply with applicable corporate-law obligations.

The relationship should instead be documented carefully because it may explain how the transaction was arranged.

Conflict of Interest Should Be Examined

Determine whether persons approving the transaction had direct or indirect interests in the purchasing company.

Board minutes, corporate ownership records and commercial agreements may help establish the relationship.

Can the Transaction Be Cancelled?

Whether a transaction itself can be invalidated depends on its legal structure and the particular grounds relied upon.

Not every breach of directors’ duties automatically makes an underlying sale contract void.

The distinction between attacking the transaction and pursuing liability for the loss is important.

Damages Must Be Calculated Carefully

A simple formula can provide a starting point:

Comparable arm’s-length price – actual related-party price = potential price differential.

That figure can then be multiplied by relevant quantities, but adjustments may be necessary for volume, logistics, credit terms, quality and other commercial differences.

Expert evidence may therefore be necessary.

Lost Profit Can Be More Difficult to Establish

A shareholder may argue that the company would have earned greater profits if goods had been sold independently.

Such claims require evidence that the higher-price sales were realistically available, not merely theoretically possible.

Evidence Should Be Preserved Before Litigation

Important evidence can include invoices, quotations, customer correspondence, price lists, board records, accounting ledgers, inventory records, bank documents, contracts, emails and shareholder communications.

Foreign shareholders should avoid waiting until corporate relationships have completely broken down before preserving evidence.

Consider an Independent Audit Strategy

Where accounting irregularities are suspected, an independent review can help identify patterns in related-party sales, rebates, receivables and inventory movements.

This may also narrow the issues before litigation.

Do Not Ignore Statutory Audit Materials

Where the company is subject to independent audit, auditor reports and financial-statement notes may contain information concerning related-party transactions or unusual financial developments.

Management Release Decisions Require Careful Review

Foreign shareholders should consider the legal consequences before voting on resolutions concerning the release of directors or managers when potential related-party misconduct remains unresolved.

Dividends Can Reveal the Economic Effect

If the company historically generated substantial profits but dividend capacity collapses after related-party sales begin, analyze the underlying financial changes.

Reduced dividends alone do not prove misconduct, but they may reveal the practical impact of questionable transactions.

Company Valuation May Be Affected

Repeated profit transfers can reduce EBITDA, earnings and therefore company valuation.

This can become particularly important if the foreign shareholder intends to sell its shares, exercise an exit mechanism or participate in a corporate restructuring.

Share Purchase Agreements Should Be Reviewed

Foreign investors may have contractual protections beyond statutory shareholder rights.

Review reserved matters, related-party transaction restrictions, veto rights, information rights, board nomination rights, warranties and shareholder dispute provisions.

Shareholders’ Agreements May Provide Stronger Protection

A shareholders’ agreement may require minority approval for transactions with affiliates or transactions above a specified value.

A related-party sale can therefore constitute both a corporate-law issue and a contractual breach.

Arbitration Clauses May Affect the Strategy

If shareholder or investment agreements contain arbitration provisions, determine which disputes fall within the arbitration clause and which corporate matters remain subject to Turkish courts.

Forum analysis should occur before proceedings are initiated.

Foreign Investors Should Coordinate Corporate and Litigation Strategy

Immediately filing a lawsuit is not always the first step.

The shareholder may first need to secure information, preserve evidence, formally object to decisions and prevent further transactions.

The order of these actions can materially affect the case.

Immediate Action Plan for Foreign Shareholders

A foreign shareholder who suspects below-market sales to a related business should identify the purchasing company’s ownership, collect comparable independent sales, review production costs and margins, inspect corporate approvals, exercise available information rights, examine accounting and inventory records, calculate the potential corporate loss, review shareholders’ agreements and reserved matters, formally record objections and evaluate urgent judicial protection if the transactions continue.

Frequently Asked Questions

Is it illegal for a Turkish company to sell products to another company owned by the majority shareholder?

Not automatically. Related-party transactions can be legitimate. The pricing, commercial justification, corporate approvals, conflicts of interest and resulting company loss must be examined.

Does selling below market price automatically create director liability?

No. Liability requires analysis of applicable duties, breach, damage and causation. A legitimate commercial discount may be defensible.

Can a foreign minority shareholder request information?

Potentially. Turkish company law provides shareholder information mechanisms, although their precise scope depends on the company’s legal form and circumstances.

What evidence best proves below-market pricing?

Comparable independent sales, quotations, market data, cost records, invoices, rebates and expert analysis can be particularly important.

What if the related company resells the goods for a much higher price?

The resale can be relevant evidence, especially where commercial conditions are comparable, but the complete transaction should still be analyzed.

Can the shareholder recover the price difference personally?

Not necessarily. If the direct loss belongs to the company, the appropriate corporate remedy and claimant must be determined carefully.

Can ongoing related-party sales be stopped urgently?

Interim judicial protection may potentially be considered where the legal requirements are satisfied and continued transactions threaten serious loss.

What if the majority shareholder approved the transactions?

Majority approval does not automatically resolve questions concerning legality, controlling-shareholder obligations, conflicts of interest or management responsibility.

Can a shareholders’ agreement provide additional remedies?

Yes. Related-party transaction restrictions, veto rights, reserved matters and contractual dispute mechanisms may provide protections beyond statutory rights.

What should the foreign shareholder do first?

Preserve the evidence and reconstruct the economics of the transaction. Identify who controls the purchasing company, compare related-party prices with genuinely comparable independent sales, calculate the company’s potential loss and determine who approved the arrangement before selecting the appropriate corporate, contractual or judicial remedy.

Client-Focused Legal Support for Foreign Shareholder Disputes in Turkey

Fırat Fesih Kaya Law Office assists foreign shareholders and international investors in Turkish company disputes involving related-party transactions, transfer of corporate value, controlling-shareholder conduct, director liability, information rights, financial records, minority shareholder protection and urgent judicial measures.

Lawyer Fırat Fesih Kaya provides legal assistance in investigating below-market related-party transactions, preserving financial evidence, challenging corporate decisions, pursuing appropriate liability claims and protecting foreign investors against continuing loss of company value.

Phone:
+90 312 434 22 22

Mobile:
+90 532 769 22 22

Email:
info@firatfesihkaya.av.tr

Address:
Mevlana Boulevard No:221, Yıldırım Tower, Office No:148
06520 Balgat, Çankaya, Ankara, Turkey