Turkey: Managers In Limited Liability Companies Under The Turkish Commercial Code No. 6102

Last Updated: 28 February 2013
Article by Revan Sunol

Introduction

The managers of limited liability companies are regulated under articles 623 to 630 of the Turkish Commercial Code No. 6102 ('TCC'), within the scope of the management and representation of the company.
With the TCC, the natural organ principal, whereby all of the shareholders of the company are per se managers, has been abandoned and the elected organ principal has been adopted. The title of Manager may be appointed with the articles of incorporation during the incorporation of the company or afterwards by way of a shareholders' general assembly resolution.
Therefore, the management and representation of the company may be left to shareholder or non-shareholder persons that have been elected. However, the management and representation of the company cannot be left entirely to third parties, at least one of the shareholders must possess the right to management and representation of the company.

Management Board

With the TCC, an execution understanding similar to that of joint stock companies has been introduced with the determination that, if there is more than one director, then they will form a board.
Pursuant to Article 624 of the TCC, if there is more than one manager of the company, one of these managers shall be elected as the president of the management board by the general assembly. The management board adopts resolutions with the vote of the majority and in the case of a deadlock, the president shall have a casting vote.
The president manager also has other functions such as convening the general assembly, carrying out general assembly meetings and making declarations and announcements, unless agreed otherwise.
With the new regulation, it is now possible for legal entities to also be appointed as manager. This way, an association, a joint stock, a limited liability or an unlimited liability company may be appointed as manager to the company.
Pursuant to Article 632/2 of the TCC, "where one of the managers of the company is a legal entity, such legal entity shall determine a real person to carry out its duties on its behalf".
Therefore, although the manager title belongs to the legal entity, the real person representative appointed by the legal entity shall perform the management duties.

Duties and Authorities of the Managers

Managers are responsible and authorized for all matters that are not within the responsibility and authority of the general assembly according to the law and the articles of incorporation.  Compared to the Turkish Commercial Code No. 6762, the TCC regulates the loyalty and diligence duties of managers in a more detailed manner.
Managers and other persons that are responsible for the management of the company are obliged to perform their duties with utmost diligence and to protect the interests of the company within the framework of the principal of good faith.
The managers are under the obligation of equal treatment to shareholders. Within this scope, managers must realize equal actions for shareholders under equal conditions. However, if some of the shareholders possess preferential rights on pre-emptive rights, then as there are no longer equal conditions, the managers shall not be under the obligation of equal treatment.
The non-compete obligation of managers is regulated under Article 626/2 of the TCC. Within this scope, managers and other persons that are responsible for the management of the company shall not engage in activities that are in competition with the company. This provision is not mandatory and it may be otherwise agreed within the articles of incorporation, or an approval stating otherwise may be obtained from the shareholders.
The managers have the duty to notify and give notice of bankruptcy in the event the company loses its capital or is in debt.
In accordance with the principle of separation of functions, Article 625 of the TCC lays down the non-transferrable duties and authorities of the manager or the management board. All of the non-transferrable and inalienable duties and authorities relate to the execution and formation of the organization and the management units of the company in a general sense.
Although the law does not explicitly regulate the transfer of the management and representation authority, under Article 577/1/i, authority provisions with respect to transfer of the company management to third parties shall be binding if provided under the articles of incorporation. Under Article 625 of the TCC, "the supervision of whether the persons to whom certain aspects of company management has been assigned are acting in compliance with the laws, articles of incorporation, by-laws and instructions" is one of the non-transferrable and inalienable duties and authorities of the managers. As understood, management and representation authority may be transferred in limited liability companies.

Liability of the Managers

As per Article 644 of the TCC, Article 549 regarding the unlawfulness of documents and declarations, Article 550 regarding inaccurate declarations with respect to the capital and the knowledge of insufficiency to pay, Article 551 regarding corruption in pricing, and Article 553 regulating the liability of incorporators, board of directors, managers and liquidation officers, shall be applied to the liability of the managers of limited liability companies.
Accordingly, persons violating Articles 549 to 551 are subject to the penalties set forth under Article 562 paragraphs 8 to 10. Furthermore, managers are, along with the shareholders and the limited liability company itself as a legal entity, personally liable for public debts. This liability is applied pursuant to the Social Security and General Health Code No, 5510, Tax Procedure Code ("TPC") and Code of Procedure of Collection of Public Receivables ("CPCPR").
Pursuant to the TPC, Article 10, in order for tax and other debts belonging to a limited liability company to be collected from the assets of managers, the tax office must have been unable to collect the tax due to the managers not performing their duties related to the tax. Pursuant to repetitive Article 35 of the CPCPR, which constitutes another provision governing the personal liability of statutory representatives for tax liability of limited liability companies, if public receivables may not be fully or partially collected, or if such receivables appear to be uncollectible from the assets of the legal entity, they shall be collected from the personal assets of the statutory representatives of the legal entity. The repetitive Article 35 does not require the fulfilment of a condition regarding whether the statutory representatives have performed their duties or not for collecting the debt from their assets.

Conclusion

As can be seen, an understanding similar to that of joint stock companies is put forth in the TCC for limited liability companies with the adoption of new concepts such as the management board and legal entity managers. However, it should be kept in mind that the managers are personally liable for the public debts of the company.

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.

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