Generally, the corporate entities are organizations which are established for making commercial activities to achieve one purpose by their owners. The corporate entities also have rights and obligations like natural persons and they are constituted from their own human and property communities. A corporate entity is independent from the individuals and organs which create the entity and is a different subject of right. With this characteristic, corporate entity is not affected from the change of the individuals and organs that creates itself and all the actions made through its organs are attributed not the person which made the actions but to corporate entity. This principle named as 'The Separation and Independency Principle'. With the acceptance of this principle, owners of corporate entity are not unlimitedly responsible for the creditors of the company and it is the company who is the responsible for. In Turkish Legal System, the shareholders of an incorporated company are only responsible to contribute and pay capital that they undertook to pay. In this direction, after the payment of capital undertaken, shareholder does not have any responsibility for creditors' receivables. This is situation is 'The Limited Responsibly Principle'.
However the consequences of absolute implementation of limited responsibility of owners and separation and independency of corporate entities principle cause unjust situations. In case of owners' fraud against law by hiding themselves behind the concept of corporate entity and violation of obligation rose from their own contractual relations with third parties to damage them, the lifting the veil of incorporation shall become taking into consideration. The article 2 of Turkish Civil Code regulates the good faith subject and according to mentioned article's provision everyone must obey the good faith rule when they use their rights and fulfill their obligations and the legal order does not protect abuse of right. This main good faith rule is the basis when corporate structures disregarded by the Courts. By the implementation of disregard of corporate structures, legal order aims to prevent misuse of limited responsibility by corporate owners and in this regard makes owners completely responsible from corporate entity's debts or makes corporate entity responsible from its owner's personal debts.
From good faith basis forth, in some circumstances, it is possible to determine disregard of corporate entity by Courts which are; (i) insufficient capital, (ii) the mix of owners' and corporate entity's field and property. When a corporate entity continues its business activities without contributing capital needed to achieve purpose of its foundation, Courts decide that owners of such company cannot benefit from the principle of limited responsibility since the main obligation was not fulfill by them and it is deemed as a sign of abuse of corporate entity's characteristic and violation of good faith. In this direction, it is possible to regard owner as responsible from the corporate entity's obligations.
On the other hand, the mix of owners' and corporate entity's field and property is the most often situation that disregard of corporate structure is assumed exist. In particular circumstances, financial records of company and its owners get mixed and it is become impossible to determine which property is belongs to whom. The exact separation of properties belongs to owners and company is very important for the implementation of the 'Limited Responsibility Principle.' In this direction, Courts consider that if an owner cannot separate its properties from the company, then owner cannot benefit from the limited responsibility principle and may disregard the corporate entity to make owner responsible.
In conclusion, in Turkish Legal System, the disregard of the corporate structure is not defined by specific articles under the Turkish Codes and it is an exception situation that Courts consult in case all options are exhausted. However, mainly the good faith rule and protection of right gives form the decisions of Courts and the specialties of each case are taking into consideration.
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.
