LIABILITY OF THE BOARD MEMBERS IN JOINT-STOCK COMPANIES
In joint-stock companies, the authority for management and representation is, as a rule, vested in the board of directors. According to the Turkish Commercial Code, management authority and representation authority are distinct concepts, and each can be separately delegated to third parties who are not members of the board of directors (such as general managers and managers).
A general manager who is authorized to represent the company may perform all kinds of works and legal transactions that fall within the purpose and subject matter of the company on behalf of the company and may use the company title for this purpose. In this sense, the scope of the representation authority is all kinds of works and legal transactions “falling within the company’s purpose and subject matter of operation”.
The company is legally responsible for the actions of a general manager who has management and representation authority. However, the company reserves the right of recourse against the general manager due to his/her wrongful acts or actions outside the purpose and scope of the company.
Duty of Management and Supervision
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Board members are responsible for managing the company and ensuring that all transactions comply with the law, the provisions of the articles of association, and the interests of the company. This includes participating in board meetings, making recommendations, actively engaging in discussions, obtaining information from the company, and conducting inspections.
Duty of Care
Since the legal relationship between board members and the company is based on an agency agreement, board members owe the company a duty of care. Article 369 of the TCC highlights the “prudent manager” standard, emphasizing the necessity of acting diligently.
Duty of Loyalty
Board members owe a duty of loyalty to the company and its shareholders. This duty requires that members not prioritize their own interests, the interests of controlling shareholders, or those of related parties above the interests of the company. Board members must not make decisions or take actions favoring their private interests to the detriment of the company.
Prohibition on Transactions with the Company and Competition
Under Article 395/1 of the TCC:
“A board member may not, without the approval of the general assembly, engage in any transaction with the company on their own behalf or on behalf of a third party; otherwise, the company may claim that the transaction is null and void. The other party cannot make such a claim.”
Prohibition on Borrowing from the Company
The prohibition on borrowing by board members is regulated under Article 395/2 of the TCC as follows:
“Non-shareholder board members and their non-shareholder relatives listed in Article 393 may not borrow cash from the company. The company may not provide guarantees, sureties, or collateral for these individuals, nor may it assume their obligations or acquire their debts. Otherwise, creditors of the company may pursue these individuals directly for the amount borrowed from the company.”
General Liability of Board Members
Under Article 553 of the Turkish Commercial Code (TCC), members of the board of directors in joint-stock companies are liable for damages caused to the company, shareholders, or creditors if they violate their obligations arising from the law or the articles of association due to their fault. For this liability to arise, the following four main conditions must be met together. These are;
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Violation of the Law or Articles of Association
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Fault
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Damage
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Causality (Causal Link)
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Additional Points
Under Turkish law, in addition to the general liability of the board of directors, there are also a number of special cases in which its liability is regulated. In order for companies investing in Turkey to be aware of these situations, you can contact our team of specialized lawyers and experienced financial advisors.
