The year 2011 was introduced as a "revolution year" in
Turkish commercial life since the new commercial law was expected
to regulate from A to Z in commerce however during the time elapsed
several amendments and changes in effectiveness of the particular
provisions manifested the realities of daily business life.
One of these realities was the non competition obligations of
shareholders and managers in joint stock companies and limited
liability partnerships still remains as a problem that seems
impossible to be resolved since it directly relates evidence law in
practice. The obstacle in evidencing the failures is still high
risk especially for foreign companies set out or involved in
special purpose vehicles in a form of joint stock company and
limited liability partnership.
Pursuant to the article 396 of the Turkish Commercial Law
"None of the members of the Board of Directors, without
permission of the general assembly, either himself or on behalf of
third party, shall not conduct any transaction in the same scope of
the business of the company they take role or become as unlimited
liability partner at a company in the same kind of business."
Since the provision seems effectively enforceable at the first
glance the boards of the joint stock companies endeavor to support
and prove their claims in terms of evidencing.
As obviously seen, the phrases such as "any
transaction" and the "same scope of business" are
relatively difficult to be construed when proving the failures in
competition is in question.
Even the law grants optional rights such of asking compensation
for the company or deeming the transaction conducted on behalf of
the company, these all requires judging and subject to
argumentations that creates operational risk on SPVs.
The prescription period defined in the law also supports our
criticism. According to the article 396 of the Turkish Commercial
Law, these optional rights shall be exercised within three months
period of time of being informed. Considering the purpose and
duration of the SPVs in Turkish market, provisions having no
practical effect in daily business leads foreign companies to
re-think in establishment of SPVs in Turkey.
The same also applies to limited liability partnerships which is
any other type of corporations in Turkey. According to the article
613 of the Turkish Commercial Law Partners of a limited liability
partnership are responsible for protecting company secrets. This
liability shall not be removed by articles of association of
partners assembly resolution. The provision follows that
"Partners may not act that may jeopardize the interests of the
company. In particular, they are not allowed to carry out
transactions providing a special interest to them or resulting
damage to the company. The provisions related to the obligation of
non competition shall be brought by articles of
As clearly seen, on one hand the law prohibits the competitive
manners of partners against the company interest and follows by
stipulating that this shall be provided by articles of association
which creates a dilemma in implementation of the law.
We see that not being limited to above regulations in limited
liability partnerships, the article 613/4 of the Turkish Commercial
Law gives green light to breach of non-competition obligation.
Accordingly, providing the approval of all other partners in
writing, partners shall conduct transactions contrary to loyalty
commitment and non-competition obligation.
These all put down to the fact of how the mentality of
"corporating" may be transformed a tool to create an
obstacle against managerial competence at a company. In today's
Turkey as an emerging market with growing rate in FDI; as legal
advisers we need to suggest foreign companies to spent more time on
management & partnership structuring that are cornerstones of
the investment in all forms of corporations including but not
limited to SPVs.
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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