Introduction
The Turkish Commercial Code No. 6102 ("Code") stipulates that a joint-stock company shall be managed and represented by the board of directors. It is essential for the board of directors to exercise its authority in compliance with the law and the company's articles of association. Pursuant to Article 367 of the Law, the duties and powers of the board of directors may be partially or wholly delegated to another member or to a third party; however, the non-transferable duties of the board of directors are specified in Article 375 of the Law. Those duties cannot be assigned to others by the general assembly, nor can the board of directors' delegate relevant duties, and such powers must be executed solely by the board. Preparation of annual activity reports is classified under the Code as a non-transferable duty of the management body, and detailed provisions concerning the preparation and signing of these reports and financial statements are addressed in Articles 514 and subsequent articles of the Code. The annual activity report is an assessment of the management status of the joint stock company for the previous accounting period. Unlike financial statements, the report is a document that includes subjective assessments made by the board of directors with objective data and complements the financial information.
Moreover, based on relevant articles of the Code, the Regulation on the Minimum Content of Companies' Annual Activity Reports ("Regulation") has been issued to determine the necessary content for annual activity reports prepared by the management body.
Although Articles 514 and subsequent articles of the Code focus on joint-stock companies, it is important to note that, under Article 610 of the Code, the provisions governing financial statements for joint-stock companies and Articles 514 through 527 shall also apply to limited liability companies. In this article, the general principles and procedures for the preparation and signing of financial statements and annual activity reports within the scope of current legislation shall be examined.
Preparation of Financial Statements and Activity Reports
According to Article 516/1 of the Code, the main elements of the annual activity report are the company's operations and financial status over the year. The report shall also include details such as company developments, potential risks, board evaluations, significant events, and financial benefits provided to senior executives.
Article 515 of the Code mandates that financial statements shall be prepared in compliance with Turkish Accounting Standards, accurately reflecting the company's assets, liabilities, equity, and operational results in a complete, comprehensible, comparable, relevant, transparent, and reliable manner.
In line with Article 3 of the Regulation, an annual activity report is defined as a report prepared by the management body under the Code and the Regulation, reflecting the company's financial condition and the course of its activities for the relevant year in an accurate, complete, straightforward, fair, and truthful manner. The report shall include information on the company's progress and any anticipated risks. According to current legislation, the activity reports shall generally include the following items:
- General information, the company's financial status, anticipated risks, and the management body's evaluation,
- Financial benefits provided to board members and senior executives, including salaries, bonuses, allowances, travel and accommodation expenses, and similar benefits,
- Significant events and activities after the end of the accounting year,
- The company's research and development activities,
- Future projections and any additional information deemed appropriate by the management body, provided they are following the Regulation.
Under Articles 375 and 625 of the Turkish Commercial Code, the preparation of financial statements and activity reports is classified as a non-transferable duty of the board of directors and/or the board of managers. Within this scope, the board of directors and/or the board of managers is required to prepare the financial statements, their annexes, and the annual activity report for the previous accounting year, prepared in accordance with Turkish Accounting Standards, within the first three months of the subsequent accounting year and to submit these to the general assembly for approval. If a disagreement arises, members may add a dissenting opinion, or multiple annual activity reports may be presented to the general assembly. With the board of directors' decision, the annual activity report is added to the agenda of the general assembly. During the ordinary general assembly meeting, matters such as the board of directors' annual report, financial statements, profit distribution, and the discharge of board members are discussed and resolved. At these meetings, the board of directors' annual activity report is reviewed, and resolved by the general assembly.
Additionally, the board of directors must prepare the annual activity report in a manner that enables shareholders to fully and accurately understand the company's activities. The report shall be written with a clear language, avoid ambiguous statements, and define technical terms as necessary.
Signing of Financial Statements and Activity Reports
Article 16 of the Regulation requires that the activity report be signed and approved by the chairman and members of the board of directors and/or the board of managers. This same article provides that members who disagree with the contents of the report may add a reasoned dissenting opinion. Differing interpretations of this provision have emerged in legal doctrine.
An opinion in the doctrine suggests that the provision shall be read as requiring the approval of the decision of the board of directors and/or the board of managers that forms the basis of the activity report, rather than requiring the report itself to be signed by all members and the chairman. This opinion seeks the approval of a duly prepared resolution for the activity report but does not mandate the signatures of all members and the chairman on the report itself.
An opposing opinion in doctrine holds that the activity report, rather than the board resolutions, shall be signed by all board members, and any opposing views shall be noted in the report with justifications. Otherwise, it is asserted that the report would be invalid.
Another opinion in the doctrine argues that if unanimity is not achieved in signing the report, separate reports shall be provided for each board member and/or board of managers, or a report with dissenting opinions shall be issued.
In light of the explanations above, it can be stated that, according to the Code and Regulation, the preparation and signing of activity reports are defined as non-transferable duties of the board of directors and/or the board of managers. Regarding the wording of Article 16 of the Regulation, there is no consensus in the doctrine as to whether it refers to the signing of the annual reports itself or whether it refers to the duly adopted resolution of the board of directors and/or the board of managers on which the report is based.
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.
