The management of founder's equity is a strategic process that encompasses the legal foundation of a startup (incorporation as a joint-stock company), partnership dynamics (Shareholders' Agreement), and investment potential (dilution management). Successful management is achieved through a fair distribution of shares based on contribution and protective mechanisms such as vesting.
The Basics
Alright, let's get started. When you embark on the journey of founding a startup, there is an element that is just as important as the product you develop, the business model you create, and the market you target—and often even more critical: founder's equity.
These shares don't just represent the legal ownership of your company; they also determine your future growth potential, your ability to attract the most talented employees to your team, and most importantly, your capacity to attract the investment that will scale your dreams.
Many founders think of ‘shares’ as a slice of pie to be divided. This isn't a bad analogy to start with, but it's dangerously incomplete. With 20 years of experience, I can tell you that this is not a static pie. Let me give you a more accurate analogy.
Founder's Equity: Your Company's “Genetic Code” (DNA)
Here's the metaphor I want you to think about: Your founder's equity and partnership structure are your company's DNA strands.
Why DNA? Your startup is a living, growing organism. The founder shares are the “genetic code” of this organism. Initial Code: This code you set on day one (who owns what percentage, under what terms) determines how the company will respond to crises in the future, how healthily it will grow, and what it will become.
Growth (Reproduction): As the company grows (new investors, employee options), this DNA is copied and multiplied. If the basic code is sound (a solid Shareholders' Agreement), growth will be healthy. If the code is flawed (unclear shares, no agreement), this “genetic error” will affect the entire organism.
Starting Code: The code you set on day one (who owns what percentage, under what terms) determines how the company will respond to future crises, how healthily it will grow, and what it will become.
Growth (Multiplication): As the company grows (new investors, employee options), this DNA is copied and multiplied. If the basic code is sound (a solid Shareholders Agreement), growth will be healthy. If the code is flawed (unclear shares, no agreement), this “genetic error” spreads throughout the entire organization and cripples the company.
Attractiveness (Investment): Investors (VCs) and key talents look at a company's “genetic map” (Cap Table) before joining. A clean, logical, fair, and “Vesting”-protected DNA structure attracts the best investors and talents. A flawed DNA (e.g., a partner who owns 30% but no longer works) is the biggest “red flag.”
Now let's examine the fundamental components that make up this “DNA,” namely the legal structure and ownership rights, one by one.
Why is it strategically better to establish a Joint Stock Company (A.Ş.) rather than a Limited Liability Company (LTD. ŞTİ.)?
The most common choices for startups in Turkey are Joint Stock Companies (A.Ş.) and Limited Liability Companies (LTD. ŞTİ.). While an LTD. ŞTİ. can be established with a minimum capital of 10,000 TL, the minimum capital for an A.Ş. is 50,000 TL. At first glance, LTD. ŞTİ. may seem cheaper and easier, but this is a strategic mistake that can prove very costly in the medium term.
A startup aiming to attract investment should, without exception, be a Joint Stock Company. Why?
Ease of Share Transfer (Investor Convenience): Share transfers in a JSC do not require notary approval. This greatly simplifies the processes of investors entering (investing in) and exiting the company. In a LTD. ŞTİ., however, share transfer is a bureaucratic nightmare requiring notary and general assembly approval. No VC wants to deal with this bureaucracy.
Financial Instrument Flexibility: The joint stock company structure is legally much more conducive to international venture capital standards such as preferred shares, stock option plans (ESOP), and convertible debentures. Founder Protection (Hidden Trap): In a LTD. ŞTİ., partners are liable for the company's unpaid public debts (SGK, taxes) with all their personal assets. In an A.Ş., this liability is limited to the capital you commit (with exceptions).
What Should You Pay Attention to in the Agreement?
The company's articles of association, registered with the Commercial Registry, are the legal “constitution” that defines the basic operating rules of your venture. Do not view this document as a standard text.
Tip: For a joint stock company with a capital of 50,000 TL, create 5,000,000 shares with a nominal value of 1 Kuruş instead of 50,000 shares with a nominal value of 1 TL. This simple move gives you tremendous flexibility in managing future employee stock options (ESOPs) and calculating small investment tranches.
7-Step Equity Management Roadmap for Startup Founders
What to Do: Sit down with your co-founders. Avoid the “equal split” (%50-50) myth. While this may seem easy at the beginning, it is the number one cause of future deadlocks and loss of motivation.
How to Do It: Use the Dynamic Equity Distribution Model based on contribution, risk, and responsibility. Create a matrix like the one below and honestly score each founder's contribution. This turns an emotional fight into a logical negotiation.
Decide on the Legal Structure (Corporation)
Start directly as a Joint Stock Company (JSC) for investment, ESOP, and ‘exit’ flexibility. All serious VCs and angel investors in Turkey expect this.
Prepare Your Contract Strategically
Work with a legal advisor. Do not use a standard text. Maximize the number of shares by keeping the nominal value of the share at a low level, such as 1 Kuruş. Define the scope of activities broadly to account for future ‘pivot’ (business model change) possibilities.
Transfer All Intellectual Property to the Company
Nothing should remain in the personal ownership of the founders. All code, designs, trademarks, and patent applications must be transferred to the company's legal entity through an “IP Transfer Agreement” and registered with the Turkish Patent and Trademark Office.
Sign the Shareholders' Agreement
This is your insurance policy. Unlike the Articles of Association, this document is confidential and sets out the real rules of the relationship between the partners.
It must include provisions on Vesting, Cliff, Right of First Refusal (ROFR), Tag-Along, Drag-Along, Non-Competition, and Confidentiality.
Be sure to include a “Vesting” rule in the Shareholders Agreement. This ensures that founders “earn” their shares over the course of their employment with the company.
If a founder leaves the company before the first year (Cliff) is over, they are not entitled to any shares. At the end of the first year, they vest 25% of their shares. The remaining 75% is vested in equal installments over the following 36 months (monthly or quarterly). At the end of the fourth year, they own all of their shares.
This prevents a founder from leaving after 6 months and disappearing with 50% of the company's shares. This is a prerequisite for investors.
Create an Investment Readiness (Data Room)
Prepare all these documents (Articles of Association, Trade Registry Gazette, SHA, IP Assignment Agreements, Financial Statements) for investor review in a digital “data room.” This demonstrates how serious and “investment-ready” you are.
“Dead Equity” is Your Biggest Enemy
This is the price you pay for not implementing vesting. If you have a partner who owns 20% of the company but left the team two years ago, no investor will touch that company. Why? Because that 20% stake is “dead equity” that cannot be allocated to new investors or given to key employees as ESOP. This “genetic defect” in your company's DNA grows like a tumor and kills the company. Vesting is the only cure.
Being Professional Is the Best Approach
This is the most dangerous sentence that could be engraved on a startup's tombstone. The Shareholders' Agreement is not made for “good days,” but for the inevitable “bad days” and disagreements that will arise. You must sign that agreement to prevent your partnership from breaking down.
The Articles of Association are publicly available (as required by the Turkish Commercial Code) and can be viewed by anyone. The SHA, however, is a private agreement between the partners. The main rules governing your relationship (vesting, profit distribution priorities, separation conditions) are set out in the SHA. In the event of a dispute, courts generally give priority to the provisions in the SHA, which reflect the private will of the parties.
Don't View Dilution as a Loss
When you receive investment, new shares are issued to the company and your current share ratio (percentage) decreases. This is called “share dilution.”
Wrong Perspective: “Oh no, I used to own 50% of my company, now I own 40%. I lost.”
Correct Perspective: "I owned 50% of my company, which was worth 4 million TL (2 million TL). I received 1 million TL in investment. Now the company is worth 5 million TL, and I own 40% (still 2 million TL). Plus, there's now 1 million TL in cash in the company's coffers to fuel our growth."
Remember: It's better to own 1% of a billion-dollar pie than 100% of a worthless pie. Dilution is the price you pay for growing the pie.
Conclusion and Future Perspective
As you can see, founder shares are not just a title deed, but a strategic lever for your venture. This is not a “set it and forget it” kind of business. It is the art of managing your company's DNA.
The most important message to remember is this: Your job as a founder is to encode this DNA correctly at the outset (Proper Legal Structure + Fair Share Distribution + Protective Shareholder Agreement) and ensure that this code evolves without being corrupted in each investment round.
Future Perspective: According to 2024 data (KPMG and StartupCentrum reports), Turkey's startup ecosystem continues to mature, receiving record investments. There is significant activity, particularly in the seed stage (TÜBİTAK BİGG, KOSGEB support, Angel Investor incentives). However, this also means increased competition for the next stage, known as the “Series A Gap.”
