Transfer Of Management Authority Of Board Of Directors In Joint Stock Companies

I. INTRODUCTION

According to Turkish Commercial Code No. 6102 ("TCC"), joint stock companies are managed and represented by the board of directors. The board of directors is the general authorized body of the joint stock company, except for the exceptions determined under TCC, and its powers arise from the law and the articles of association. Article 365 of the TCC stipulates that the joint stock company shall be managed by the board of directors and article 390 stipulates that decisions shall be taken by the majority of the members present unless there is an aggravating provision to the contrary in the articles of association. Article 367/2 of the TCC stipulates that the management belongs to all members of the board of directors, unless delegated. In this context, unless any delegation of authority is made by the board of directors, the management authority of the company will belong to all members of the board of directors.

The board of directors is not obliged to exercise the management right and representation authority in person; pursuant to Article 367 and article 370/2 of the TCC, the board of directors may delegate the management partially or wholly to one or more board members or to a third party. This transfer shall comply with the conditions stipulated under article 367/1 of the TCC. These conditions are as follows¹:

• There must be a provision in the articles of association permitting delegation of authority.
• An internal directive must be prepared in accordance with the articles of association and the minimum content specified under article 367/1 of the TCC.
• The board must adopt a resolution on delegation of authority, referring to the internal directive.

II. SCOPE OF TRANSFER OF AUTHORITY

Pursuant to article 367/1 of the TCC, the board of directors may delegate its management authority, in whole or in part, to one or more board members or to a third party. The subject matter of the transfer under article 367/1 TCC is management in the narrow sense, and the transferred management authority does not include the transfer of representation authority. Article 370/2 of the TCC stipulates that "the board of directors may delegate its representation authority to one or more members or third parties".² Thus, the law has separated the right of management from the power of representation, and pursuant to article 367 of the TCC, only the "decision-making" function is transferred in the partial or complete transfer of management. As a result, article. 367 of the TCC only regulates the transfer of management powers and duties related to the "internal affairs of the company", while article 370/2 of the TCC regulates the transfer of powers related to "representation" and the conditions regarding such transfer.

The limits of transfer of authority are basically defined by the non-transferable duties and powers of the board of directors. These non-transferable duties and powers are basically regulated under article 375 of the TCC, and the non-transferable and inalienable duties and powers listed therein shall not be transferred under article 367 of the TCC. In addition, the TCC regulates non-transferable duties and powers of the board of directors, such as "filing a lawsuit for the annulment of general assembly resolutions", "making a capital increase decision in the registered capital system", etc.³ In conclusion, it is not possible to transfer the duties and authorities pursuant to Article 367 of the TCC, if these duties and authorities are explicitly assigned to the board of directors by other provisions of the TCC or special laws, particularly Article 375 of the TCC.

III. CONDITIONS OF VALIDITY OF TRANSFER OF AUTHORITY

1. Delegation of Authority Should be Permitted under the Articles of Association

Pursuant to article 367/1 of the TCC, in order for the board of directors to transfer its authority, the articles of association shall contain a provision stipulating that the management may be transferred. The internal directive to be prepared for the transfer of management authority shall be based on this provision of the articles of association. It is not possible for the board of directors to duly transfer its management authority through an internal directive based on a resolution of the general assembly that does not constitute an amendment to the articles of association. ⁴

The articles of association may authorize the board of directors to transfer authority, or this authority may be restricted or even completely abolished in certain matters. It is not possible to interfere with the transfer of management by articles of association or general assembly resolution.

2. Preparation of Internal Directive

An internal directive is, in the simplest terms, an organizational text indicating the relationship of duties between the board of directors and management. As a rule, although it is prepared as a separate written "document", if the articles of association do not provide for a qualified majority, a written decision or protocol to be taken by the board of directors with the majority of the members present at the meeting regarding the transfer of the duty is sufficient.⁵

Article 367 of the TCC sets forth what shall be regulated in the internal directive. Pursuant to this article, the internal directive should include "the organization of the company management, determination of the powers ", "demonstration of authorities' duty stations", "definitions of the duties" and "who is subordinate to whom and responsible to whom, and who is obliged to provide information". The issues listed in this article are the minimum issues that the internal directive should contain.

There are some formal and substantive conditions for the board of directors of a joint stock company to prepare internal directives.

a) Formal Conditions

• The internal directive should be prepared based on the delegation of authority provision under the articles of association. In order for the board of directors to prepare internal directives, the articles of association shall first authorize the board of directors to delegate management authority. If there is no authorization in the articles of association, it is not possible to apply the internal directive prepared in terms of delegation of authority and to delegate authority.

• The internal directive must be in writing. Pursuant to article 390/5 of the TCC, the validity of the resolutions of the board of directors depends on whether such resolutions are in writing and signed. The internal directive is based on a resolution of the board of directors; therefore, the internal directive subject to the resolution of the board of directors shall also be prepared in writing.

• The internal directive must be based on a valid board resolution. In order for the resolution of the board of directors on the adoption of the internal directive to be valid, the board of directors shall have convened with one more than half of the total number of its members and, unless otherwise stipulated in the articles of association, must have adopted a resolution with the absolute majority of the number of board members attending the meeting. If the articles of association of the company include a provision stipulating that a qualified majority is required for the decisions regarding the adoption of the internal directive, the board of directors is obliged to take decisions with a qualified majority.

b) Substantive Conditions

• The internal directive should not be contrary to the law and articles of association. Provisions of the internal directive that are contrary to the law and the articles of association shall be invalid.

• The internal directive should address the regulation of company management.

3. Board of Directors Decision on Delegation of Authority

The board of directors, which wishes to determine the management organization, will delegate the management with a resolution to be taken within the scope of the internal directive to be prepared and if such delegation is permitted under the articles of association and Unless otherwise stipulated under the articles of association, the board of directors shall convene with the majority of the total number of its members in accordance with article 390 of the TCC and take decisions with the majority of the members attending the meeting. The decision on delegation of authority should refer to the internal directive and clearly state to whom the management authority is delegated in the light of this directive.

IV. CONSEQUENCES OF TRANSFER OF AUTHORITY

As a result of the delegation of authority, management powers are shared within the management organizational structure. The authority to manage includes the authority to make decisions, and the units that have the authority to make decisions in company management are defined as organs. Therefore, as a result of the transfer of management authority, new bodies are formed in the management of the company.

Although the powers of the board of directors remain in place in the delegation of authority, the units that use these powers change. If the powers are partially delegated, some of the management powers are exercised by the executive directors and the other part by the board of directors. If the powers are fully delegated, then the board only exercises non-transferable management powers. If the powers are delegated to more than one managing director, then the managing directors may form a board among themselves. This so-called "executive board" and the board of directors together manage the company.⁶

Pursuant to article 553/2 of the TCC, "Bodies or persons who delegate a duty or an authority arising from the law or the articles of association to another person shall not be liable for the acts and decisions of such persons, except in the event that it is proved that they did not exercise reasonable care in the selection of the persons delegated with such duties and authorities." The responsibility for the delegated authority shall belong to the person using this authority. If the same authority is delegated to more than one person, these persons shall be liable among themselves in accordance with the differentiated succession provisions.⁷

V. TERMINATION OF TRANSFER OF AUTHORITY

According to article 367 of the TCC, the board of directors is authorized to appoint executive directors by delegating its management authority. Pursuant to article 375/1-b of the TCC, the authority to determine the management organization of the company is among the non-transferable duties and powers of the board of directors. Within the scope of this authority, the board of directors may appoint and dismiss executive directors and managers. As a result of this rule, the board of directors may dismiss the executive director and managers appointed as a result of delegation of authority when required by the company's organization. The transfer of authority will be terminated as a result of the dismissal by the board of directors.

Footnotes

1. DEMİREL, Anonim Şirketlerde Yönetim Yetkisinin Devri, Hacettepe Hukuk Fakültesi Dergisi - 2017, s.221

2. PULAŞLI, Şirketler Hukuku Genel Esaslar, s. 407

3. SAKAR, TEMUR, Non-Transferable Duties and Powers of the Board of Directors In Joins Stock Companies, Mondaq 2024

4. DEMİREL, Anonim Şirketlerde Yönetim Yetkisinin Devri, Hacettepe Hukuk Fakültesi Dergisi - 2017, s.227

5. PULAŞLI, Şirketler Hukuku Genel Esaslar, s.409

6. DOĞAN, Anonim Şirket Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.633

7. DOĞAN, Anonim Şirket Yönetim Kurulunun Organizasyonu ve Yönetim Yetkisinin Devri, s.633