There are two types of systems throughout the world for the organization of boards of directors: The One-Tier Board System and the Two-Tier Board System. With the latter system, the board has a dual organizational structure that is comprised of a supervisory board and an executive board, and this system is preferred by Eastern European countries, such as Germany, Austria and Poland, having social market economies. On the other hand, the One-Tier Board System is preferred by countries with free market economies, including Turkey. In this system, the board fulfills both supervision and execution functions. However, since it is difficult to perform both functions in large companies due to the work load, the board delegates management and representation powers, and acts as a supervisory body1. The provisions of the Turkish Commercial Code No. 6102 ("TCC") concerning representation authority are also shaped around these principles.
In this article, firstly, general explanations will be given about the delegation of representation authority, and by the concept of limited authorized representative, which is introduced by Law No. 6552 on the Amendment to the Labor Law and Certain Laws and Restructuring of Some Receivables adopted on 10.09.2014, will be emphasized. It is worthy of note that these provisions, which are regulated under joint-stock companies, apply comparatively to limited liability companies pursuant to Article 629 of the Turkish Commercial Code.
Delegation of Representation Authority
In accordance with Article 370/2 of the TCC, a company's board of directors may delegate its representation authority to one or more executive directors, or to third parties, as managers. In the latter case, it is stipulated that at least one member of the board shall have representation authority.
In contrast to the former Commercial Code, delegation of representation and management authorities is regulated under different articles. Therefore, the doctrine is controversial as to whether the conditions in Article 367 that govern the delegation of management apply to the delegation of representation authority. The dominant opinion defends that these conditions apply to both cases.
Accordingly, it is necessary for the lawful delegation of representation authority that:
- The articles of association includes a provision that permits the delegation of representation authority;
- The board of directors prepares an internal directive; and
- The board of directors makes a delegation decision.
There are a number of issues to be considered in order to meet these requirements. For example, the persons to whom representation authority will be delegated cannot be determined in the articles of association, or limitations cannot be made on the qualifications of these persons, and the appointment of the persons to whom the authority will be delegated cannot be subject to the approval of the general assembly. Another situation constitutes transfer of the board's authority to determine the organization of management, which is among the inalienable duties as per Article 375 of the TCC, to the general assembly, and is void. The articles of association with such provisions cannot be registered with the trade registry and, even if it is, it does not create a positive effect of registration3.
The internal directive, the second step in the delegation of representation authority, regulates the management and representation of the company; it identifies the tasks required for this purpose and, in particular, determines with whom the persons are connected and obliged to provide information. In the provision, no form requirement was stipulated for internal directives; however, it is made in writing, considering that the board decisions are subject to written form in accordance with Article 390 of the TCC. The authority to issue internal directives cannot be transferred since it is included in the authority of the board of directors to determine the management organization. The internal directive should not specify the persons to whom the representation authority will be delegated. This will lead to an increase in the workload, since this will mean the preparation of a new internal directive if the authorized persons change.
Registration and announcement of the internal directive is not required; the board of directors shall inform the shareholders and creditors who convincingly demonstrate their interest worthy of protection on this internal directive, in writing, and upon request. The law has adopted the presumption that shareholders have an interest in protection. The only limit for shareholders to exercise this right is the prohibition of abuse of right4.
Appointment of Limited Authorized Representative
As mentioned above, Law No. 6552 has added a new paragraph to the end of Article 371 of the TCC, as follows:
(7) "In addition to representatives set out above, the Board of Directors may appoint board members not having the authority to represent, or persons who have an employment contract with the company, as a commercial agent with limited authority, or as another merchant assistant. Duties and powers of those so appointed will be expressly determined in the internal directive to be drafted in accordance with Article 367. In this case, registration and announcement of the internal directive will be obligatory. Commercial agents and other assistants to merchants may not be appointed by an internal directive. Commercial agents or other assistants to merchants authorized in accordance with this paragraph will be registered with, and announced by, the commercial registry. The Board of Directors will be jointly and severally responsible for all damages caused by such persons to the company and third parties."
This regulation made it possible to register and announce certain authority restrictions that are not allowed by both the old and the new Turkish Commercial Code. While the representation authority before the said regulation can only be limited to the dual signature and place of transaction5, it is now possible to limit the authority based on the subject or amount of the transaction.
Persons who may be appointed under Article 371/7
In this provision, there is restriction upon the persons who can be appointed as limited authorized representatives. Only non-authorized members of the board, or persons who have an employment contract with the company, may be appointed as a commercial agent with limited authority, or as another merchant assistant. That means that the members of the board who are authorized to legally represent and whose authorities have not been changed, and executive directors or managers as set forth in Articles 371/1 and 370/2 of the TCC are not within the scope of this provision. It should be noted that limited authorized representatives can only be appointed under the two titles as mentioned; the commercial representative, which is another type of representative regulated in the Turkish Code of Obligations ("TCO"), is not covered by these Articles6. Also, "persons who have an employment contract," does not mean a technical employment contract. A person who works continuously and who is affiliated with the company is also covered by this provision, even if there is no technical employment contract.
The duties and powers of the representatives to be appointed with limited authority shall be clearly defined in the internal directive that is prepared and registered in accordance with Article 367. It should also be noted that the names of the persons to be appointed in this directive should not be specified; they shall be determined by a decision of the board of directors. This resolution of the board is also required to be registered and announced. According to the doctrine7, the announcement of the internal directive is explanatory.
Criticisms on Article 371/7 of the TCC
The general principle of the new TCC is to protect transaction security and to protect third parties in legal relations with the company, so that the limitation of the powers of the company representatives is kept as narrow as possible, limited to two cases. However, with Article 371/7 of the TCC, it becomes possible to limit representation authority with the subject or amount of the transaction8. Therefore, this provision is highly criticized in doctrine for adopting a regime that is contrary to the general principles of the TCC.
It should also be noted that limitations, such as quantity or subject, were previously registered, in practice, by some trade registries. However, as agreed in the doctrine and judicial decisions, it was not possible to assert this against bonafide third parties, even if the representation authority limitations have been registered. Article 371/7 of the TCC made these registrations, in practice, in accordance with the law.
The delegation of representation authority has become a necessity to facilitate the operation of large joint stock companies. The TCC regulates the delegation of representation authority in accordance with this necessity. In fact, Article 371/1, which was introduced by Law No. 6552, has taken this one step further, and has legalized the practice. This has been highly criticized in the doctrine, and has been claimed that the TCC has been separated from its general principle of protecting third parties in legal relations with companies.
 Cenkci, Esra: Anonim Ortaklıkta Yönetim Kurulunun Temsil Yetkisinin Devri, Ankara 2018, p. 21-23.
 Cenkci, p. 51.
 Cenkci, p. 56-57.
 Kırca, İsmail / Şehirali Çelik, Feyzan Hayal /Manavgat, Çağlar: Anonim Şirketler Hukuku, V. 1, Ankara 2013, p. 608.
 Kırca / Şehirali Çelik / Manavgat, p. 645.
 Yanlı, Veliye / Okutan Nilsson, Gül: "Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini", Banka ve Ticaret Hukuku Dergisi, December 2014, V. 30, No: 4, p. 13.
 Yanlı / Okutan Nilsson, p. 24.
 Yanlı / Okutan Nilsson, p. 8.
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