Turkey: Shareholders’ Liability For Public Debts In Turkish Law

Tax Liability in Joint Stock Companies

As is known, administration and representation of joint stock companies are carried out by board of directors of the company. Members of board of directors can be elected by general assembly of the company from among shareholders or other third persons and board of directors can even leave the administration and representation of the company to only one member of the board of directors or other persons who are not member of board of directors as well.

Unless the administration of a company is left to a member of board of directors or other persons who are not member of board of directors, all members of the company shall be severally liable for public debts of the company by their personal assets if the public debts cannot be fully or partly collected from company assets so that members of board of directors shall be liable.

If the management of a company is left to a member of board of directors or other persons who are not member of board of directors, these persons will be liable from public and tax debts of the company.

Shareholders do not have a liability for tax debts unless they are a member of board of directors or representative of the company assigned by the current board of directors.

In the following situations, persons who are assigned by board of directors will be severally liable for public debts of the company by their personal assets:

  • if the evaluation of the seized assets do not meet the whole public debt and taxes, or in case of insolvency despite sale of the whole company assets under Execution and Bankruptcy Law,
  • If the company assets are not seizable,
  • If the debt cannot be collected from bankrupt's estate in case of request for bankruptcy or adjudication of bankruptcy proceeding,
  • If the debtor cannot be reached or found

Tax Liability in Limited Liability Companies

Administration and representation of limited liability companies are carried out by "directors" under Turkish Commercial Code (all of the shareholders of the company are per se "directors"). Directors can be elected from among shareholders or third persons by the general assembly of the limited liability company.

Limited liability company's public and tax debts must be collected from the company assets. In case of following situations shareholders or legal representative of the company will be liable for the public debts:

  • In case where the evaluation of the seized assets do not meet the whole public debt and taxes, or in case of insolvency despite sale of the whole company assets under Execution and Bankruptcy Law
  • If the company assets are not seizable,
  • If the debt cannot be collected from bankrupt's estate in case of request for bankruptcy or adjudication of bankruptcy proceeding,
  • If the debtor cannot be reached or found.
  • Under the Law on Procedures of Collection of Public Receivables, limited liability company's shareholders will be liable for the public debts which cannot be collected from the company assets according to their share percentage in the capital and the debts will be collected from the personal assets of legal representative of the limited liability company. (if there is not an assigned legal representative shareholders will bear the debts).

Even though a shareholder transfers his/her whole shares to another person, s/he remains liable for the public debt which is before the transfer transactions, with the transferee person severally. Previous and the previous shareholders should be liable for the public debt of limited liability companies if the shareholders are different at the times when such debt is born and when it became due and payable.

If a company owes 600.000.-TL as public debt, for example, (in case there is not an assigned representative by board of directors of the company), and has a 50.000.-TL capital, in case where a shareholder holds 20 % of the total capital which equivalent to 10.000.-TL, this shareholder will be liable for 120.000.-TL (600.000 x 20 %).

As a result, while members of board of directors of a joint stock company are liable for public debt, in a limited liability company all shareholders are liable for public debt unless they assign a legal representative in order to administrate and represent 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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