I) INTRODUCTION

With globalization, the sphere of influence of large capital organizations has expanded, and this expansion has brought with it the need for comprehensive legal regulation for these organizations. As a result, the joint stock company has become the best organized and most elaborated commercial partnership in terms of legal structure. There are certain mandatory organs that must be present in a joint stock company, and the general assembly is one of these mandatory organs. The general assembly, which is the decision-making body of the company, is of vital importance for the continuity of the company.

The duties and powers of the general assembly are regulated in paragraph 1 of Article 408 of the Turkish Commercial Code No. 6102 ("TCC"). According to this article, the general assembly takes decisions "in cases stipulated in the law and the articles of association". This rule also delimits the division of duties and powers between the General Assembly ("GA") and the Board of Directors ("BoD"). The limits of the duties and powers that may be assigned to the GA by the articles of association are determined by the duties and powers assigned to the GA by law and the transactions that do not fall within the scope of the function of the BoD due to their nature.1

Basically, in joint stock companies, the GA is a board where shareholders or their representatives, upon a duly called meeting, discuss and decide on a specific agenda, receive information and exercise certain rights regarding the affairs of the company.2 In addition to these, the legislator has also stipulated nontransferable duties and powers for the GA of joint stock companies. These nontransferable duties and powers of the GA are regulated in various legislations, primarily the TCC.

II) LEGAL REGULATIONS ON THE NONTRANSFERABLE DUTIES AND POWERS OF THE GENERAL ASSEMBLY

A) Nontransferable Duties and Powers Regulated under TTC Article 408, Paragraph 2

Some nontransferable duties and powers of the GA are regulated under Article 408/2 of the TCC titled "Duties and Powers". The non-transferable duties and powers regulated in this article are as follows:

  • Amendment of the articles of association (Art. 408/2-a of the TTC)
    • There is only one exception to this rule. In the authorized capital system, the board of directors decides on the capital increase and accordingly the amendment of the articles of association (Art. 460 of the TTC).
  • Election of the members of the board of directors, determination of their terms, remuneration, attendance fees, bonuses and premiums, resolution on their acquitment and dismissal (Art. 408/2-b of the TTC)
  • Election and dismissal of the auditor, except for the exceptions stipulated by law (Art. 408/2-c of the TTC)
  • Taking decisions on the financial statements, the annual report of the board of directors, saving on the annual profit, the determination of dividends and profit shares, and the utilization of the reserve fund, including its contribution to the capital or profit to be distributed (Art. 408/2-d of the TTC)
  • Dissolution of the company, except for the exceptions stipulated by law. (Art. 408/2-e of the TTC)
  • Wholesale of a significant amount of company assets (Art. 408/2-f of the TTC)

B) Nontransferable Duties and Authorities Regulated in the Remaining Articles of the Turkish Commercial Code

The nontransferable duties and powers of the GA, which are regulated in articles other than Article 408/2 of the TCC, are as follows:

  • Amendment of the articles of association (Art. 421 of the TTC)
  • To decide on mergers (TCC Art. 151/1-a), spin-offs (Art. 173 of the TTC) and conversion of type (Art. 189 of the TTC).
  • Authorizing the board of directors to acquire the company's own shares or to accept them as pledge (Art. 379/2 of the TTC)
  • To take decisions on the following matters reserved in the law and the articles of association;
    • Reduction of capital (Art. 473 of the TTC)
    • Division and merger of shares (Art. 477/2 of the TTC)
    • Increase of capital in the capitalization system (TCC Art. 456/2, 459, 463)
    • Cancellation of pre-emptive rights (Art. 461/2 of the TTC)
    • Payment of preparatory period interest (Art. 510/2 of the TTC)
    • Establishment of reserves (Art. 519/2-3 of the TTC)

C) Nontransferable Duties and Authorizations as stipulated in the Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Ministry Representatives to be Present at These Meetings ("Regulation")

The GA of a joint stock company also has duties and powers that are not regulated in the Turkish Commercial Code but are regulated in the Regulation. The nontransferable duties and powers of the GA as set out in Article 30, paragraph 1 of the Regulation are as follows:

  • Unless otherwise stipulated by law, issuing or authorizing the board of directors to issue all kinds of bonds, commercial papers, asset-backed securities, other debt securities, including those issued on a discount basis, securities with the right to purchase and exchange, and all kinds of securities (Art. 30/1-g of the Regulation)
  • Taking decisions on merger, spin-off, conversion of type (Art. 30/1-ğ of the Regulation)
  • Approval of the domination agreement (Art. 30/1-h of the Regulation)
  • Approval or amendment of the internal directive on the working principles and procedures of the general assembly (Art. 30/1-ı of the Regulation)
  • Approval of the report prepared by the Board of Directors regarding the capital decrease (Art. 30/1-I of the Regulation)
  • Approval of agreements for the acquisition or lease of an enterprise or real property for a consideration exceeding one tenth of the share capital within two years from the date of registration of the company (Art. 30/1-j of the Regulation)

III) LIMITS OF THE DUTIES AND POWERS OF THE GENERAL ASSEMBLY OF A JOINT STOCK COMPANY

According to Article 340 of the TCC, "the articles of association may deviate from the provisions of the law on joint stock companies only if expressly permitted by law". Pursuant to this principle, the GA is authorized to take decisions only within the scope of the law. The GA is not vested with absolute decision-making authority. The GA must exercise its powers in compliance with the following limitations:

1) Powers of Other Organs and Persons

Although the GA is the decision-making body of joint stock companies, it cannot exercise the powers granted by law to other bodies.3 For example, notification to the court in case of insolvency is listed among the nontransferable duties and powers of the board of directors under Article 375/1 of the TCC. It is not possible for the GA to exercise this authority. Similarly, since the auditors are authorized by law to audit the year-end accounts, it will not be possible for the GA to exercise this authority.

2) Rights of Third Parties

The GA cannot affect the rights of third parties with its decision. Because this unilaterally results in the violation of the rights of third parties and is therefore not legally possible.4

3) Minority Shareholders Rights and Individual Rights

Article 411 of the TCC grants minority shareholders the right to "add items to the agenda, postpone the general assembly meeting, and postpone the balance sheet discussions". The GA shall not limit these rights enumerated in the law. Otherwise, a lawsuit may be filed for the annulment of the GA's decisions.

4) Privileged Shares

The GA may not change the rights granted to the preference shareholders in the articles of association to the detriment of the preference shareholders without a decision of the preference shareholders taken in accordance with the meeting and resolution quorums stipulated in Article 454/3 of the TCC.

IV) LEGAL SANCTIONS TO BE APPLIED IN CASE OF EXISTENCE OF ARTICLES OF ASSOCIATION PROVISIONS OR GENERAL ASSEMBLY RESOLUTIONS THAT DELEGATE THE NONTRANSFERABLE DUTIES AND POWERS OF THE GENERAL ASSEMBLY

According to Article 340 of the TCC, the provisions of the law regarding joint stock companies are mandatory provisions. Therefore, the provisions of the articles of association that may lead to the direct or indirect transfer of the non-transferable duties and powers of the GA in joint stock companies shall be invalid. If this transfer is related to the mandatory elements of the articles of association, the articles of association will be completely null and void. If this transfer does not constitute a breach of the mandatory elements of the articles of association, only the invalidity of the said contractual provision will be mentioned.

Pursuant to Article 445 of the TCC, an annulment action can be filed against the GA resolutions that may directly or indirectly lead to the transfer of the nontransferable duties and powers of the GA. If this GA decision falls within the scope of Article 447 of the TCC, it will be nullity.

Footnotes

1. Çamoğlu, Ortaklıklar Hukuku, p. 530

2. Pulaşlı, Şirketler Hukuku Genel Esaslar, p. 308

3. Pulaşlı, Şirketler Hukuku Genel Esaslar, p.311

4. Pulaşlı, Şirketler Hukuku Genel Esaslar, P.311

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.