Pursuant to Turkish Commercial Law No. 6762, legal entities could not be elected to serve as a member of the board of directors in a joint stock company. Instead, representatives appointed by the legal entity were appointed as member. However, pursuant to the Turkish Commercial Code ("TCC") No. 6102, legal entities may be appointed to membership on the board of directors and shall be represented by a real person of their choosing. Whereas the Tax Procedural Code ("TPC") No. 3475, the TCC and the Procedures of Collection of Public Assets Code ("PCPAC") No. 6138 regulate the liability of the board of directors as the legal representative body of the company in relation to tax debts and their other obligations; there are no provisions for the liability of a legal entity board member's representative.
Legal Entity as a Member of the Board
As mentioned above, according to Art. 359 TCC, the member of the board of directors shall be the legal entity itself and not its representative. Thus, rights and duties that result from being on the board of directors, such as access to information, taking part in negotiations for the adoption of resolutions and voting rights, are executed by the representative appointed by the legal entity. The board member legal entity may only appoint one representative and the representative must be registered with the trade registry and identified on the company website (the company for which the legal entity serves as board of directors member).
Liability of Board Members
The legal liability of the board of directors, as regulated within the TCC, is fault based and may result from non-compliance with the obligations arising from the law or the articles of association of the relevant company, as per Art. 553; non-compliance of the representations and documents with the law, as per Art. 549; misleading declarations regarding the share capital or knowledge of insolvency, as per Art. 550; or from value evaluation, as per Art. 551.
Liability Related to Tax Debts
As a rule, a tax claim is first collected from the original tax debtor. Therefore, tax debts and all related liability of a joint stock company belongs primarily to the company as a legal entity. However, tax debt that cannot be recovered from the corporate legal entity, may be collected from persons and institutions that are responsible for the company1.
Pursuant to the Art. 10, par. 1 of the TPC, if a legal entity is a taxpayer or tax responsible, these obligations must be executed by its legal representatives. The second paragraph sets forth that taxes and debts that cannot be collected from the tax responsible may be collected from the assets of those persons who have a legal obligation to ensure payment on behalf of the taxpayer.
Liability Related to Public Debts
Pursuant to PCPAC, representatives of legal entities are liable for outstanding public debts since a legal entity as a board member doesn't have personal assets. According to Art. 35 of PCPAC, the representatives have strict liability if public receivables cannot be collected or if it may be anticipated that collection will not be possible beforehand.
Liability of the Legal Entity's Representative as a Board Member
Representatives of legal entities are primarily obliged to protect the rights and benefits of the company whose board of directors they work for.2 However, at the same time they protect the rights and benefits of the company that they represent, and in most instances they follow their instructions. It is important to determine the liability of the representative of the legal entity board member in these situations. According to Tekinalp, the representative is the reflection of the legal entity in the board of directors and doesn't have an opinion or voting rights. Hence, representative opines and votes on behalf of the represented legal entity3. The losses and profits of the board belong to the represented legal entity and not the representative. In a similar manner, the preamble of the TCC expresses that the aim of the law in determining the legal entity as the board member and not the representative is to prevent big companies with ample resources from "hiding behind their representatives". These statements within the preamble may indicate the legislator's intention to place liability with the represented legal entity. Correspondingly, it is possible to say that the registration of the representative with the trade registry and the publication within the trade registry gazette and the web site of the company aims to provide public disclosure of the relationship between the representative and legal entity to reinforce the accountability of the legal entity's board member. If this view is adopted the legal entity is the liable party, as it is the board of directors member, whereas under the old Turkish Commercial Code, the representative was the registered and published board member, and therefore liable in certain cases.
However it must be maintained that the representation/proxy relationship between the representative and the legal entity is independent from all of this. The legal entity may seek recourse from its representative on the grounds of their contractual relationship.
On the other hand, the TPC and the PCPAC both consider the board members responsible as a result of their title as the legal representatives of the taxpayer company. Therefore, the liability is placed on the legal entity board member. However, as mentioned above, tax authorities may pursue the representative for tax debts, because although the taxpayer is the primary person responsible, tax debts which cannot be collected from the taxpayer company or from the board member legal entity shall be recoverable from the representative of the legal entity.
Pursuant to TPC Art. 8, par. 2, "tax responsible" is the person responsible before the tax office for payment. In this context, it is generally accepted that the board members of a company are tax responsible and collection from their personal assets is possible. This may be taken one step further to say that the representative of the legal entity board member would be its tax responsible legal representative, and therefore liable as well. However, there is no clarity in this respect. In any case, the tax responsible may seek recourse from the taxpayer as per their internal contractual relationship.
In light of the above explanations, it may be said that, as a principle, the legal entity is liable as a board member. However, there is no clarity in the relevant provisions and the subject will be clarified in practice.
1. Veliye YANLI – Banka ve Ticaret Hukuku Dergisi, Anonim Şirketlerin Vergi Borçlarından Kanuni Temsilcilerin Sorumluluğuna İlişkin Bazı Hususlar, p.66
2. Bumin DOĞRUSÖZ – Anonim Şirketlerde Temsilci Yönetim Kurulu Üyelerinin Sorumluluğu
3. TEKİNALP - Sermaye ortaklıkları p.195 et seq. N.12-14
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