Turkey: The Ability Of Companies To Enter Into Specific Transactions (Limits Of Corporate Powers) Under Turkish Law:

The Ultra Vires1 Doctrine

When a company is first established, its shareholders may be confident that -through that company- they will be able to carry out any and all activities. In accordance with Turkish law, this would not be a right reasoning. One day, the said shareholders may suddenly discover that their "almighty" company is legally not capable of entering into a certain transaction, or even more strikingly, part of the transactions already executed by it are null and void. How can this be?

Article 137 of the Turkish Commercial Code (the TCC) is as follows:

"Having legal personality, trade companies shall be entitled to acquire all rights and undertake all obligations provided that such rights and obligations fall within the scope of activities indicated in their Articles of Association. Statutory exceptions regarding this matter shall be reserved."

One can easily infer the essence of what is called the Ultra Vires doctrine from the above: Any company established in Turkey may carry out only the activities specified in its Articles of Association (AoA). The Ultra Vires doctrine (the Doctrine) restrains the ability of a company to enter into a contract or perform an operation that is beyond its corporate powers whose limits are determined by its AoA. Accordingly, any Ultra Vires act concluded by a company is considered to be invalid and thus does not confer any rights and/or obligations on neither the company nor third parties.

Although open to criticism, the Doctrine is widely recognized in Turkish law practice. Below you may find information on (i) the Doctrine; (ii) the way it is implemented by the Turkish Court of Appeals (the Court); and (iii) its fate under the Draft TCC.

I. The Doctrine under the TCC

Principle. The Doctrine was imported to Turkish law from the United Kingdom. As mentioned above, it is derived from Article 137 of the TCC and basically provides that a company may carry out only the transactions explicitly authorized by its AoA, which is registered with the respective Trade Registry and announced in the Trade Registry Gazette.

Scope. Pursuant to Turkish law, only collective partnerships (kolektif sirket), limited partnerships (komandit sirket), cooperatives (kooperatifler), limited liability companies (limited sirket) and joint stock companies (anonim sirket) fall within the scope of the definition of "Trade Companies" (ticaret sirketleri) and thus are subject to the Doctrine.

Consequence. In cases where a company performs a transaction that is beyond its corporate powers, such transaction would be an Ultra Vires act whose validity may be challenged on the ground that the company lacked the necessary power when the relevant transaction was performed. Ultra Vires acts are null and void, which means that they do not have any binding effect.

Post-approval of an Ultra Vires act by the shareholders of the relevant company does not rectify the nullity of the said act. The only way to overcome the nullity of an Ultra Vires act is (i) first to amend the AoA of the company in order to broaden its scope of activity and (ii) then re-perform the same act.

II. The Doctrine in light of the Precedents of the Court

The earlier judgements of the Court reflected a very strict implementation of the Doctrine. However, the Court subsequently realized that such an approach may hinder companies' ordinary course of business and obstruct their day-to-day management. By taking this very fact into account, it has softened its interpretation of the Doctrine.

For instance, the Court allowed companies to provide guarantee in favour of banks for credit debts and obligations of third parties even if a special wording, e.g., provision of guarantee for debts and obligations of third parties, is not expressly set out among their scope and objective. The rationale behind this ruling is that commercial circumstances necessitate merchants to support other merchants to conduct their businesses and ensure their continuance. Therefore, provision of guarantee for credit debts of third parties is in the nature of ordinary business activities and is not necessarily required to be expressly specified in the scope of activities of their AoA. Nonetheless, in a more recent judgement, the Civil General Assembly of the Court brought a more restrictive interpretation of the Doctrine.

To sum up, it will depend on the circumstances of each case to determine whether or not the acts performed by a certain company are subject to the application of the Doctrine. Considering conflicting judgements of the Court and to be on the safe side, it would be advisable for companies to (i) include comprehensive scope and objective clauses and general clauses in their AoA allowing them to engage in any business; or (ii) amend their AoA where necessary before engaging in a potentially Ultra Vires activity. Consequently, they will be able to transform potential Ultra Vires acts into Intra Vires.

III. The Doctrine under the Draft TCC

The inconsistent and erratic application of the Doctrine so far seems to have caused the legislator to dismiss it: Article 125 of the Draft TCC, derived from Article 9 of the First Council Directive No. 68/1512, abolishes the long-standing Doctrine set forth by the TCC. The said Article does not contain any special provision as regards companies' corporate powers and makes reference to the general rule on the capacity of natural persons stipulated in the Turkish Civil Code. Accordingly, once the Draft TCC is enacted, the Doctrine restricting the operational comfort of companies will be history, resulting in companies conducting business more freely.

Footnotes

1. Beyond the powers.

2. First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community published in the Official Journal OJL 65, dated 14 March 1968, pages 8 to 12.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions