I) Introduction

Under the Turkish Commercial Code No. 6102 ("TCC"), the bodies of a joint stock company are the general assembly and the board of directors. The board of directors ("BoD") is the "executive" and "representative" body of the joint stock company and is the general authorized body of the joint stock company, with exceptions in the law, and its powers arise from the law and the articles of association. Pursuant to Article 359/1 of the TCC, a joint stock company shall have a board of directors consisting of one or more persons "appointed by the articles of association" or "elected by the general assembly".

First and foremost, the BoD is authorized to carry out all transactions that fall within the "purpose and subject matter of the business" written in the articles of association of the company.1 In addition, pursuant to Article 371/2 of the TCC, transactions made by those authorized to represent the company with third parties outside the scope of the company's business shall also bind the company. The only exception to this is if the third party proves that the transaction is outside the subject matter of the business.

Apart from the aforementioned, the legislator has stipulated non-transferable duties and powers for the BoD in various articles of the law, particularly in Article 375 of the TCC.

II) Non-Transferable Duties and Powers of the Board of Directors as Regulated Under Article 375 of the Turkish Commercial Code

Article 375 of the TCC sets forth the non-transferable duties and powers of the BoD, and these powers are listed below.

1) Top Level Management of the Company and Giving the Necessary Instructions Regarding the Same (TCC Art. 375/1-a)

Top-level management means making and implementing decisions of a fundamental nature relating to the "existence of the company" and its "successful development" that are the sole responsibility of the BoD. In this context, three main powers fall under the concept of senior management authority.2 These are:

  • Determining and developing the company's strategic purpose and company policy.
  • Identification and provision of the means and resources (e.g. capital, personnel, etc.) necessary to achieve the strategic objective.
  • Checking that managers are fit for purpose.

The BoD exercises its senior management authority by giving instructions. Instructions may be set out in an internal directive prepared by the BoD, or may be concrete directives, written or verbal, in everyday corporate life, addressed by the BoD chairman, BoD committees or other authorized persons in management to those in management positions.3

2) Determination of the Company Management Organization (TCC Art. 375/1-b)

The BoD is obliged to draw up an organizational chart in accordance with the purpose of the joint stock company. An organizational chart is a diagram that shows the subordinate-superior relationships, job descriptions, departments and the relationships between everyone involved in management.4 With this organization chart, the hierarchical structure between the people involved in management, their job descriptions and which authorities will be delegated to whom are determined.

3) Establishment of Accounting, Financial Audit and Financial Planning System (TCC Art. 375/1-c)

In order to ensure the financial balance of the company, the legislator has brought together three different powers within the scope of financial management authority. These are financial planning, establishment of an accounting system and financial auditing.

  • Under the financial planning mandate, the BoD should program the company's budget execution and ensure that the company has the necessary financial resources, i.e. liquidity, at all times to achieve its objectives.5
  • The establishment of an accounting system establishes a certain documentation and information networking system, which enables the board of directors to monitor changes in the company's assets and asset relations. Therefore, the BoD should establish a properly functioning accounting system that is appropriate to the needs of the company and should monitor whether the accounting records are kept in accordance with the law.
  • Financial audit is the examination of the financial course and flow in an enterprise, i.e. "backward looking" audit. The assurance and guarantee of the conformity of financial transactions with the law and generally accepted accounting principles is realized through financial audit.6

4) Appointment and Dismissal of Managers and Persons with the Same Function and Signature Authority (TCC Art. 375/1-d)

Appointment and dismissal of the managers and authorized signatories involved in the management shall be carried out in accordance with the provisions stipulated in the "internal directive" prepared by the Board of Directors.

5) Supervisory Supervision of Persons in Charge of Management (TCC Art. 375/1-e)

Supervisory oversight, according to the law, is "the supervisory oversight of whether the persons in charge of management act in compliance with the law, the articles of association, the internal directives and the written instructions of the BoD." Although the supervision in the text of the article refers to the supervision of whether the directors act in accordance with the existing rules, the supervisory obligation covers not only the control of whether the normative rules are complied with, but also the supervision of whether the activities are carried out efficiently and effectively in accordance with the company's purpose.7 In this respect, within the scope of the senior management task, the board of directors should direct the managers, give necessary instructions and in this context, co-manage the management activities, albeit at a minimum level.

6) Keeping of Books, Preparation of Annual Activity Report and General Assembly Meetings, Preparation of General Assembly Meetings and Execution of General Assembly Resolutions (TCC Art. 375/1-f)

The books of the company need not be kept personally by the BoD. It is possible for this duty to be fulfilled by persons appointed by the BoD. However, the duty and authority of bookkeeping cannot be delegated to the general assembly or the supervisory board by a provision to be included in the articles of association or internal directive.

Of those listed in this article, only the annual activity report of the BoD shall be prepared by the chairman of the BoD himself, by obtaining information from the relevant persons in the management.8 The responsibility lies with the entire BoD.

7) Notification to the Court in Case of Insolvency (TCC Art. 375/1-g)

This situation is regulated in detail under Article 376/3 of the TCC. According to this article, "If there are signs that arouse the suspicion that the company is insolvent, the board of directors shall prepare an interim balance sheet based on both the going concern basis and the probable sales prices of the assets. If it is understood from this balance sheet that the assets are not sufficient to meet the receivables of the company's creditors, the board of directors shall notify this situation to the commercial court of first instance where the company headquarters is located and request the bankruptcy of the company."

Within the scope of this duty and authority, the BoD is not obliged to notify the court of insolvency in person; it may also notify the court through a manager or lawyer authorized by it.

III) Non-Transferable Duties and Powers of the Board of Directors Regulated in the Remaining Articles of the Turkish Commercial Code

Although Article 375 of the TCC lists the non-transferable duties and powers of the BoD, other articles of the TCC also stipulate various non-transferable duties and powers for the BoD. These duties and powers are as follows9:

  • Filing a lawsuit for the annulment of general assembly resolutions (TCC Art. 446/1-c)
  • Decision on capital increase in the registered capital system (TCC Art. 456/2)
  • Preparation of declaration in conditional capital increase (TCC Art. 470)
  • Signing the merger agreement in company mergers (TCC Art. 145)

IV) Non-Transferable Duties and Powers of the Board of Directors of the Subsidiary Company

Article 203 of the TCC stipulates that in case of complete domination, the parent company's BoD may give instructions to the subsidiary company, and the subsidiary company's organs are obliged to comply with these instructions. According to this article, "if a commercial company directly or indirectly owns one hundred percent of the shares and voting rights of a capital company, the board of directors of the parent company may give instructions regarding the direction and management of the subsidiary company, even if they are of a nature that may have consequences that may lead to its loss, provided that they are required by the determined and concrete policies of the group. The organs of the subsidiary must comply with the instruction."

As can be understood from this provision, it will not always be possible for the Board of Directors of the subsidiary company to exercise the powers set forth under Article 375 of the TCC. The board of directors of the parent company may give instructions to the board of directors of the subsidiary company regarding the management of the company. The only exception to this situation is regulated under Article 204 of the TCC. Pursuant to Article 204 of the TCC, the parent company may not give instructions that "clearly exceed the management power of the subsidiary company, that may jeopardize its existence, or that may cause it to lose its significant assets".

Pursuant to Article 205 of the TCC, "The members of the board of directors, executives and other persons who may be held liable of the affiliated company shall not be held liable to the company and its shareholders for their compliance with the instructions within the scope of Articles 203 and 204." In this case, the board of directors of the subsidiary company acts as an officer of the board of directors of the parent company, and such a board of directors will not be able to exercise the powers regulated under Article 375 of the TCC.10 Therefore, Article 375 of the TCC is not a regulation that is fully applicable by the board of directors of affiliated companies.

V) Conclusion

The non-transferable duties and powers of the board of directors in joint stock companies are regulated in various articles of the TCC, particularly Article 375 of the TCC. These duties and powers may not be delegated to any other person or body. Provisions in the articles of association that delegate these duties and powers shall be invalid. If this transfer is related to the mandatory elements of the articles of association, then the articles of association will be completely null and void.

The board of directors of the subsidiary company must comply with the instructions of the board of directors of the parent company, with exceptions. For this reason, the provisions on non-transferable duties and powers under Article 375 and the remaining articles of the TCC are not fully applicable to the boards of directors of subsidiary companies.

Footnotes

1. PULAŞLI, Şirketler Hukuku Genel Esaslar, s.391

2. DOĞAN, Anonim Şirket Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.613

3. PULAŞLI, Şirketler Hukuku Genel Esaslar, s.393-394

4. PULAŞLI, Şirketler hukuku Genel Esaslar, s.394

5. DOĞAN, Anonim Şirket Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.616

6. PULAŞLI, Şirketler Hukuku Genel Esaslar, s.395

7. DOĞAN, Anonim Şirketlerde Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.620

8. PULAŞLI, Şirketler Hukuku Genel Esaslar, s.397

9. DOĞAN, Anonim Şirketlerde Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.622

10. DOĞAN, Anonim Şirketlerde Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.624

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