44 NEWSLETTER 2021 structure. The basic purpose of a family constitution is to regulate relations between current and future members of the family and between these people and the company, by considering family values and principles. The aim here is to bring the activities of the company and the family’s mission and values to a harmonious level, and to effectively prepare for transitions to future generations. In this sense, family constitutions would also serve as a guide for future generations. Another important legal instrument is the shareholders’ agreement.1 The objectives of the shareholders’ agreement includes regulating the duties and responsibilities of the shareholders in the company, if any, and preventing or minimizing the disagreements between the shareholders. The contract has a binding effect on the parties and especially the provisions regarding compensation and penalty clauses strengthen its binding nature by increasing its sanction power. The shareholders’ agreement, which offers a more flexible structure compared to the articles of association, also meets the confidentiality needs of the parties, unlike the articles of association. However, the shareholders’ agreement establishes a contractual relationship between the parties, and therefore, the remedies are limited to the contractual level. In other words, unlike the articles of association, it does not entail a corporate effect; therefore, it can only be enforced against parties to the agreement and sanctions are limited to the remedies of contract law. Incorporating the Provisions Specific to Family Businesses to the Articles of Association Parallel to the family constitution and the shareholders’ agreement, a company’s articles of association are one of the most effective legal instruments to ensure harmony within the company. The articles of association, as a tool with a corporate effect unlike the shareholders’ agreement, make it possible to challenge the validity of a resolution or a transaction, which would also impact the company. However, the 1 For detailed information on shareholders’ agreements in family businesses, please see. Çetinyılmaz, Ecem: “Shareholders’ Agreements In Family Businesses”, Erdem & Erdem Newsletter, May 2021 (http://www.erdem-erdem.av.tr/en/insights/ shareholders-agreements-in-family-businesses).
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