Limited liability companies are managed by their board of directors. As per the Turkish Commercial Code No. 6102 ("TCC"), the board of directors is composed of at least one director, who could be a Turkish or a foreign real person or legal entity, and who does not need to reside in Turkey. In case a legal entity is appointed as a director, it should then appoint a real person as representative, and such representative may also be a foreign or a Turkish citizen, and does not need to reside in Turkey.
At least one of the shareholders of a limited liability company should be appointed as the director with unlimited powers to represent and bind the company. Once this requirement is fulfilled, the board of directors may also appoint other persons to represent and bind the company on certain matters or limited to certain monetary thresholds.
2. Liability of the Board Members
In limited liability companies, the legal liabilities of board members are regulated under Article 553 of the TCC, which refers to the legal liabilities of board members of joint-stock companies. Article 644/1(a) of the TCC sets forth that the said article shall be applied to limited liability companies as well. Article 553 of the TCC indicates that, in case the directors violate their obligations arising from the law and the articles of association of the company by negligence, they shall be liable to (i) the company, (ii) shareholders, and (iii) creditors of the company.
The most important aspect of Article 553 of the TCC is that, in order for the director to be held liable, obligations arising from the law and the articles of association of the company should have been violated by the director through "negligence". Therefore, directors shall only be held liable under Article 553 of the TCC if they violate their obligations by intent or recklessness.
Moreover, according to Article 553/2 of the TCC, board members of limited liability companies who transfer a duty or an authority arising from the law, or from the articles of association of such companies, to others shall not be held liable for the actions and decisions of such persons, if they prove that they demonstrated sufficient care while choosing those persons assigned to such functions and powers. Having said that, the board members are also obliged to supervise and instruct, if necessary, those to whom the authorities of the board of directors are delegated. In any case, directors shall not be held liable for all actions of these persons, but they shall be liable for their actions that the directors could supervise.
3. Special Liability Conditions
Apart from the general legal liability rule, which is regulated under Article 553 of the TCC, there are several special liability conditions for the directors which are also regulated under the TCC:
- Article 549 of the TCC regarding "documents and declarations being in contradiction with the law" indicates that the directors shall be held liable for the legal violations found in the documents if they are at fault,
- Article 550 of the TCC regarding "false declarations concerning capital and awareness of payment deficiency" indicates that legal liability for the directors arises if they are at fault,
- Article 551 of the TCC regarding "corruption in valuation of the capital in kind and enterprise to be acquired together with the capital in kind" indicates that legal liability may arise from losses that are the result of such illegal actions,
- Article 574 of the TCC regarding "not taking necessary actions when the number of partners is down to one" indicates that directors may be held liable in case any losses result from the failure to fulfill the requirements with respect to registering and announcing such facts,
- Article 622 of the TCC regarding "request of nullity and cancellation of general assembly resolutions with bad faith" indicates that the liability of the directors may arise for those who caused the losses,
- Article 193 of the TCC regarding "the loss caused by the related person with the process of merger, split-off or conversion transactions" indicates that legal liability may ensue for the directors if the directors have participated in the transaction in any manner, and
- Article 202 of the TCC regarding the "unlawful exercise of the control by the dominant company over the subsidiary" indicates that legal liability may arise for those who cause damage to the subsidiary.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in December 2017. A link to the full Legal Insight Quarterly may be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.