This study examines the conditions and governing principles of legal liability of board members of joint stock companies under Turkish law for acts, transactions, and decisions that contravene the law, their fiduciary duties, or the company's field of business. The analysis is conducted within the framework of the Turkish Commercial Code No. 6102 ("TCC"). In the final section, particular emphasis is placed on board members who do not exercise managerial authority—namely, passive, non-executive, and independent directors—whose legal responsibilities are also considered in light of the Capital Markets Law No. 6362 ("CML") and its related secondary legislation.
A. Conditions of Board Members' Liability
Pursuant to Article 553 of the TCC, for liability to arise from a board member's actions or omissions, the general conditions of liability set forth under Article 49 of the Turkish Code of Obligations—unlawfulness, fault, damage, and causal link—must be satisfied. These conditions must be evaluated in light of the specific circumstances of each case. In determining whether fault exists, the standard applied is whether the board member acted with the care expected of a "prudent manager," as established in Article 369(1) of the TCC.
1. Unlawfulness
According to Article 553 of the TCC, a prerequisite for holding board members liable in accordance with the principles of liability law is that the act or transaction in question must be unlawful. Articles 371 and 374 of the TCC authorize the board of directors to carry out, on behalf of the company, any acts and transactions that fall within the company's scope of activity. Therefore, an act may be deemed unlawful if it exceeds the company's scope of activity, violates statutory duties, or is inconsistent with the articles of association.
In this respect, determining whether an act or decision is unlawful requires an objective interpretation of whether it falls outside the company's scope of activity, breaches legal obligations, or conflicts with the articles of association.
Although Turkish law does not explicitly define the term scope of activity, it is widely understood as referring to the sectors and commercial areas in which the company operates in pursuit of its objectives. Article 339(1)(b) of the TCC mandates that the company's scope of activity must be stated and defined in its articles of association at the time of incorporation.
To determine whether a specific transaction falls within the scope of the company's activity, it is necessary to evaluate its functional connection to the company's objectives and whether it yields, or could potentially yield, a benefit to the company. A reasonable connection between the act and the company's activity, along with an actual or expected benefit, is generally sufficient to consider the act as falling within the company's permitted operations.
An act may either directly correspond to activities explicitly listed in the articles of association or, even if not mentioned, support the realization of the company's objectives in an ancillary way. In this respect, an act that is indirectly connected to the company's operations and contributes to its interests may still be deemed within its scope of activity. Pursuant to Article 374 of the TCC, the board is responsible for implementing the company's objectives, and this may necessitate engaging in related or supportive activities. Accordingly, a broad interpretation of the scope of activity is generally considered compatible with commercial realities, the continuity of corporate operations, and the need to safeguard both corporate discretion and third-party transactional security.
For example, donations made for corporate social responsibility purposes that serve to enhance the company's prestige or reputation, or promotional activities that support the company's economic interests, may be regarded as falling within the company's scope of activity. As such, actions that align with the company's interests—even if not expressly set out in the articles of association—will not give rise to liability under Article 553 of the TCC.
2. Fault-Based Liability, the "Prudent Manager" Standard, and the Business Judgment Rule
Under Article 553 of the TCC, board members are subject to fault-based liability. Accordingly, they may be held liable for damages caused by their negligent or intentional breaches of duty. The burden of proving fault, however, rests with the company, which implies a presumption of fault under Turkish law in cases of director liability.
The fact that the board has carried out an unlawful act or decision does not, by itself, give rise to liability. It must also be demonstrated that the members acted with fault, which is evaluated according to whether they failed to exercise the care expected of a prudent manager, and whether they observed the principle of good faith in safeguarding the company's interests. This standard, articulated in Article 369(1) TCC, provides an objective benchmark for assessing the diligence required of board members in the performance of their duties.
The requirement to act with the care of a prudent manager is also a reflection of the board member's duty of loyalty to the company. Where a director's decision, act, or omission breaches legal or contractual obligations, the director may be held liable if it is established that such conduct was the result of intent or negligence. Legal scholarship further accepts that even damage caused by carelessness or oversight—when contrary to the diligence standard—is sufficient to give rise to liability.
The rationale of Article 369 is clarified in the legislative justification, which defines the expected standard of diligence in terms of objective conduct. The assessment is not based on the director's personal standards of care but rather on the hypothetical actions of a prudent and impartial manager acting in a company of comparable size and industry. The analysis must consider whether such a manager, under similar circumstances, would have conducted due investigation, exercised reasonable judgment, and made decisions in the company's best interests.
Moreover, the justification aligns the director's standard of care with the "business judgment rule," a principle derived from corporate governance practices. Board members are expected to make informed decisions by evaluating the market conditions in which the company operates, its financial position, the associated risks, and the extent to which the proposed decision serves the company's long-term interests. If a director can demonstrate that a decision was based on a thorough and rational evaluation of these factors, then even if the outcome proves detrimental, the director may be deemed to have fulfilled the duty of care and, consequently, may not be held liable.
It is critical to note, however, that the business judgment rule applies only to acts that are lawful and within the company's articles of association and internal regulations. It cannot be invoked in defence of acts that violate legal norms, corporate statutes, or give rise to tortious liability.
Board members are expected to act independently, impartially, and in good faith, prioritizing the interests of the company above their own or those of third parties. A decision that furthers the personal interests of a board member, or that undermines objectivity and corporate interest, cannot be said to meet the prudent manager standard. For instance, if a board member allocates the entire donation budget designated for educational purposes to their child's school or to a sports club of which they are a member, this conduct would clearly fall short of the diligence required under Article 553.
Likewise, disproportionate donations that undermine the financial position of the company may also constitute a breach of the duty of care and good faith, thereby triggering liability.
In exercising its powers, the board of directors operates within a zone of discretion , and each decision must be evaluated to determine whether it would reasonably have been made by a similarly situated prudent manager. This includes an analysis of whether the act served the company's interests, was influenced by personal gain, complied with good faith, and was preceded by adequate deliberation. All of these criteria must be assessed on a case-by-case basis.
The assessment of whether a board member has met the prudent manager standard must be based on the specific factual and economic conditions that existed at the time of the decision. The mere fact that a decision later causes financial harm to the company does not, by itself, indicate liability. For example, if the board approved a partnership with a reputable non-profit organization—only for that organization to later be exposed for unlawful activities—the company may suffer reputational damage. In such a scenario, liability would depend on whether the board sufficiently investigated the partner's background, sought professional advice, and exercised reasonable diligence in making the decision.
Ultimately, what matters is not the outcome of the decision but the process by which it was made, and whether the board exercised proper diligence in light of the information available at the time.
In addition, some scholars suggest that, in evaluating whether a transaction exceeds the company's scope of activity, consideration must be given to the broader market conditions in which the company operates. If the deviation from the company's declared field of activity was due to compelling economic circumstances, then liability may not arise. However, if the declared activity can no longer be carried out, then the board is expected—pursuant to Articles 408(2)(a), 410, 421(1), and 421(3)(a) TCC—to propose an amendment to the articles of association and convene the general assembly accordingly.
Finally, consistent with the "prudent manager" standard set out in Article 369, Article 553(3) TCC excludes liability for statutory or contractual violations and irregularities that occur beyond the directors' control. This is also relevant to the requirement of a causal link between the director's conduct and the alleged harm. The provision confirms that events outside the control of the board may serve as a limiting factor in assessing the board's responsibility under the duty of care.
3. Damage
One of the fundamental elements required for holding board members liable under Articles 553 et seq. of the TCC is the existence of damage. In the absence of damage, no legal responsibility can arise. Under Turkish law, damage is defined as an involuntary reduction in a person's assets. More precisely, it is the difference between the injured party's patrimonial situation following the unlawful act and the hypothetical state of affairs had the unlawful act not occurred.
From the standpoint of board liability, damage may manifest in different forms. It may be actual (positive) damage, referring to the direct loss in the assets of the company, shareholders, or creditors, or it may take the form of loss of profit, which refers to the failure of an expected increase in patrimonial value due to the unlawful act or omission.
The liability of board members is not limited to direct losses suffered by the company. It may also extend to losses suffered by shareholders and creditors, including those of a consequential or indirect nature. Pursuant to Article 553(1) TCC, board members are personally liable for direct damages inflicted on the company, its shareholders, and creditors as a result of breaches of statutory or contractual obligations caused by their fault.
In this context, the direct harm typically befalls the company itself, while shareholders and creditors generally suffer indirect harm. However, where shareholders or creditors incur independent, direct damages—such as a shareholder relying on a misleading financial statement in deciding to acquire or sell shares, or a creditor extending credit based on inaccurate company disclosures—these may also give rise to direct claims.
Examples in the doctrine of direct shareholder or creditor damage include: (i) denial of dividend payments in accordance with shareholding entitlements, (ii) violation of preemptive rights during capital increases, (iii) obstruction of shareholder participation in general assembly decisions, and (iv) misrepresentations leading creditors to issue loans.
Therefore, it is common that the company suffers primary (direct) harm, which is then reflected secondarily (indirectly) in the assets of shareholders and creditors. As a general rule, tortfeasors are not liable for reflective damages suffered indirectly. Nevertheless, Articles 555 and 556 TCC introduce exceptions to this principle by explicitly granting rights to shareholders and creditors to bring actions in certain cases.
Under Article 555(1) TCC, "The company and each shareholder may claim compensation for damages incurred by the company." Similarly, Article 556(1) provides: "In the event of the company's bankruptcy, the creditors shall also be entitled to demand that compensation be paid to the company." These provisions enable derivative actions by shareholders and creditors, though only for damages suffered by the company itself.
Consistent with these principles, the harm suffered by the company due to a board member's unlawful act may indirectly affect shareholders and creditors. Even if the company is the party directly harmed, these stakeholders may experience financial setbacks, such as diminished dividends, reduced liquidation shares, or an inability to collect receivables.
For example, if a board member authorizes a transaction that disturbs the company's liquidity balance—such as an acquisition contrary to the company's interests—this may lead to a decrease in company assets. As a result, shareholders might see their profit distributions or liquidation shares reduced, while creditors may be unable to recover outstanding debts.
In line with these rules, Articles 555 and 556 TCC state that shareholders and, in cases of bankruptcy, creditors may bring actions seeking compensation for the company's direct damage, with any awarded damages to be paid to the company. The Court of Cassation, in a recent decision of the 11th Civil Chamber, reaffirmed this point. In that case, a board member had diverted company resources through fictitious invoices and personal expenditures—benefiting himself, his daughter, and his wife's company. Although shareholders and creditors suffered consequential losses, the court held that only the company had standing to claim the damages and upheld the regional court's decision to dismiss the shareholder's claim on grounds of ultra petita (bindingness of claims).
4. Causal Link
The final element required for establishing the liability of board members under Article 553 of the TCC is the presence of a causal link between the wrongful act and the damage incurred. Turkish law adopts the theory of adequate causation, which requires that the unlawful act be objectively capable of bringing about the harm in the ordinary course of events.
Accordingly, for liability to arise, the board member's act, decision, or omission must be sufficiently connected to the damage suffered by the company, shareholder, or creditor. This connection must be evaluated within the framework of ordinary life experience and objective conditions.
In the context of this study, this means there must be a cause-and-effect relationship between, for instance, a donation or acquisition decision made by the board and the loss ultimately suffered by the company. Each case must be examined on its own facts to determine whether the requisite causal link is present.
However, there are circumstances in which the chain of causation may be interrupted, thereby exonerating board members from liability. These include:
Consent of the injured party (e.g., a general assembly resolution approving the transaction),
Intervening fault of a third party (especially gross negligence),
Force majeure events (e.g., natural disasters, war, systemic economic collapse).
In such cases, even if the act of the board would ordinarily be regarded as causative, the presence of one of these factors may break the causal link, and liability will not be imposed.
Thus, when assessing the liability of board members, it is not sufficient to identify the existence of an unlawful act and the occurrence of damage. It must also be established that the unlawful act was adequately causal in bringing about the damage, based on the ordinary flow of life and in accordance with objective standards.
B. Governing Principles of Liability
Beyond the general conditions for liability, the Turkish Commercial Code also establishes specific principles that shape the structure and scope of board members' responsibility. These principles include joint and several liability, personal liability, fault-based liability, and the attribution of acts to the company. Each of these plays a fundamental role in determining how, and to what extent, individual directors may be held accountable.
1. Principle of Joint and Several Liability
Joint and several liability arises when multiple individuals contribute to the same harm and each may be held responsible for the entirety of the resulting damage. The primary purpose of this rule is to facilitate access to compensation by allowing the injured party to pursue any of the liable persons for the full amount of the loss.
In the context of board liability, Turkish law adopts a modified form of joint and several liability, in which the extent of each board member's responsibility is determined in proportion to the degree of their fault and the causal connection between their conduct and the damage. Accordingly, a board member may assert individual defenses—even against third-party claims—that serve to limit their liability.
This tailored approach to joint and several liability reflects the view that a director should not be required to bear more than their fair share of the harm, simply because others are also liable. In other words, it seeks to prevent a situation in which a director is disproportionately burdened with damages beyond the scope of their actual contribution to the wrongdoing.
2. Principle of Personal Liability
The Turkish Commercial Code embraces the principle of personal liability, which provides that each board member is liable only for their own culpable conduct. This is consistent with Articles 367, 370, 371, 393, 395, 396, and 553 of the TCC, which establish the individual responsibility of directors.
Accordingly, personal liability arises in specific circumstances, such as:
- Delegation of the company's management, in whole or in part, to one or more board members;
- Delegation of the power of representation to one or more board members or third parties;
- Participation in board decisions despite a statutory conflict of interest;
- Unauthorized transactions between the director and the company;
- Failure to comply with restrictions on assuming debts towards the company in kind or cash;
- Engagement by the board member, directly or on behalf of another, in commercial transactions falling within the company's scope of activity.
In all such cases, the liability attaches personally to the director who engaged in or facilitated the act in question.
3. Principle of Fault-Based Liability
As previously noted in Section A.2, Article 553 of the TCC establishes fault-based liability. Under this principle, it is sufficient for the claimant to demonstrate that the board member acted unlawfully—by breaching statutory duties, fiduciary obligations, or the company's articles of association—and that damage occurred. The burden then shifts to the board member to prove the absence of fault.
However, in exceptional cases, directors may be held strictly liable, meaning that fault is not required. For example, under Article 396 TCC, a board member who engages in a transaction falling within the company's scope of activity—either on their own behalf or on behalf of another—without first obtaining approval from the general assembly, incurs liability regardless of fault. Similarly, failure to properly maintain or preserve commercial books gives rise to strict liability, which cannot be avoided by blaming employees, delegates, or third parties.
4. Principle of Attribution of Acts to the Company
Under Turkish civil law, a legal entity acts through its organs, and actions taken by its governing bodies are attributed to the legal person. This is codified in Article 48 of the Turkish Civil Code (TCC), which provides that legal entities express their will through designated organs.
The board of directors constitutes such an organ. As such, all acts, transactions, and decisions taken by the board are legally attributable to the company. Pursuant to Articles 336 and 321(5) of the TCC, as well as Article 48(2) of the TCC, the board binds the company, and any unlawful acts committed in that capacity likewise generate liability for the legal entity itself.
This principle reinforces the dual nature of board members' conduct: while they may be personally liable for breaches of duty, their actions—whether lawful or unlawful—are simultaneously ascribed to the company as institutional conduct.
C. Legal Liability of Passive, Non-Executive, and Independent Board Members
This section addresses the liability of board members who do not actively participate in the management or daily operations of the company. Although TCC does not explicitly categorize board members as "passive," "non-executive," or "independent," these distinctions are increasingly relevant in both corporate practice and regulatory frameworks, particularly under the CML and the related Communiqué on Corporate Governance Principles.
1. The Concept and Liability of Passive Board Members
The TCC designates the board of directors as a mandatory corporate body in joint stock companies but does not draw formal distinctions between active and passive, executive and non-executive, or dependent and independent board members.
Under Articles 367 and 370 of the TCC, the board may delegate its management and representation powers, either in whole or in part, to managing directors or executive members, subject to certain formal requirements. Specifically, a valid delegation requires a provision in the articles of association authorizing such delegation and the adoption of an internal directive by the board. However, Article 375 of the TCC enumerates non-delegable duties, such as strategic oversight and high-level supervision, which must always remain with the board.
The delegation of management refers narrowly to the transfer of internal decision-making and operational responsibilities. In contrast, delegation of representation concerns the authority to act externally on behalf of the company and to bind it in legal transactions. Article 370(2) of the TCC allows this authority to be granted to one or more board members or third parties (e.g., managing directors), but requires that at least one board member retain representation authority when it is delegated to non-board individuals.
While the TCC does not formally define the term, scholars use the label passive board member to describe individuals who, either through delegation or voluntary non-participation, do not engage in the day-to-day management or representational acts of the company.
A board member may adopt a passive role either formally, by transferring powers pursuant to Articles 367 and 370, or informally, by refraining from attending meetings, voting, or participating in corporate governance decisions. However, this informal non-participation does not shield the director from liability under Article 553 of the TCC.
Where a member has properly delegated authority in accordance with the TCC and taken reasonable care in selecting qualified and competent delegates, they may be relieved of liability under Article 553(2). This exclusion, however, is conditional upon the member having exercised due care in the selection, instruction, and oversight of the delegated persons. The board remains collectively responsible for supervising whether executive directors and managers are acting in compliance with the law, the articles of association, internal directives, and board resolutions.
For example, a passive board member who fails to act on information suggesting that a delegated executive's conduct is jeopardizing the company's interests—and who does not bring the matter before the board for deliberation—may still be held liable for resulting damages.
In this context, the passive board member must prove that they exercised diligence in assessing the qualifications, experience, and integrity of the delegate. Even if they withdraw from operational responsibilities, they are expected to maintain an effective oversight mechanism over executive functions.
Conversely, a board member who does not attend meetings, fails to vote, and does not engage in the governance process without a valid delegation of authority is not automatically exempt from liability. While abstaining from or opposing a harmful resolution may shield the member from personal responsibility, a habitual failure to attend meetings may itself amount to a breach of the duty of care.
Therefore, directors who wish to limit their role in corporate governance are advised to formally transfer management authority in compliance with the TCC, rather than simply withdrawing from decision-making in practice.
2. The Concept and Liability of Non-Executive Board Members
The notion of non-executive board members has been introduced into Turkish law through the Capital Markets Board's ("CMB") Communiqué on Corporate Governance (II-17.1) and its annexed Corporate Governance Principles ("CGPs"). These rules, applicable to publicly held joint stock companies, distinguish between executive and non-executive directors.
Article 4 of the CGPs classifies directors as either (i) executive board members, who are involved in daily operations and decision-making, or (ii) non-executive board members, who do not participate in the execution of the company's day-to-day affairs.
Comparable classifications exist in other jurisdictions, such as the U.S., where non-executive directors play an advisory or supervisory role, mediate between competing interests, and support good governance. The distinction also appears in other Turkish legislation; for example, Article 24(1) of the Banking Law No. 5411 requires the audit committee to be composed exclusively of board members who do not hold executive functions.
Non-executive directors are essential to ensuring transparency, fairness, and accountability in corporate governance. According to the CMB, it is permissible for a company's entire board to consist of non-executive members, though certain roles—such as managing director—must remain executive by their very nature.
Article 4.3.2 of the CGPs defines non-executive board members as those who do not hold any managerial position within the company and are not involved in the ordinary course of business.
The CGPs, which contain mandatory provisions, assign significant qualitative and quantitative importance to non-executive board members. Articles 4.3.1 and 4.3.2 require that the board consist of at least five members, the majority of whom must be non-executive.
The presence of non-executive members aims to prevent internal conflicts of interest and to strengthen the board's independence. Because these members do not take part in the execution of company operations, they are presumed to have greater objectivity in evaluating proposals and decisions.
Their participation in board committees further supports transparency, especially toward minority shareholders and the public.
While the CGPs impose no separate liability regime for non-executive directors, Article 4.6.1 states that all board members, regardless of status, are accountable for achieving the company's declared operational and financial performance targets. They may be rewarded or removed depending on performance.
Like passive members, non-executive directors do not have signing authority or representational power in daily operations. Since they are not typically involved in management decisions, their liability for such decisions may be excluded under Article 553 TCC, provided they are not personally at fault.
Some legal scholars compare the role of non-executive directors in Turkish law to that of supervisory board members in German two-tier board systems. In this sense, their liability stems from their duty to supervise, advise, and prevent harm, particularly in committee roles.
3. The Concept and Liability of Independent Board Members
Independent board members are a subcategory of non-executive directors, introduced into Turkish corporate governance through the CML and further elaborated in the Communiqué on Corporate Governance (II-17.1) and the Corporate Governance Principles ("CGPs") annexed thereto. Independent directors are defined as individuals who do not participate in the company's management and whose appointment is intended to ensure impartial oversight, the protection of shareholder rights—particularly minority rights—and enhanced transparency for the benefit of both shareholders and the public.
The CGPs set forth mandatory rules concerning both the requirement to appoint independent members and the criteria for independence. Article 5.2 of the Communiqué mandates that companies whose shares are traded on certain regulated markets must include on their boards independent members who are capable of performing their duties free from any influence. Furthermore, Article 4.3.6 of the CGPs establishes a detailed list of independence criteria.
These criteria are designed to ensure that the independent member is free from financial, familial, or professional relationships that could compromise their impartiality. For instance, individuals who have served on the company's board for more than six of the last ten years, or who have provided paid advisory or consultancy services to the company, are ineligible for appointment as independent members. Similarly, individuals who are shareholders or executives of entities that engage in significant commercial relationships with the company are also disqualified.
An exception is provided under Article 6.5 of the Communiqué, allowing the general assembly to appoint individuals who do not meet these criteria as independent members for a maximum of one year, provided that the Capital Markets Board grants approval and the deviation is publicly disclosed through the Public Disclosure Platform (KAP).
In addition to meeting independence criteria, independent members must possess sufficient professional competence, time availability, and integrity to perform their oversight role effectively. Requirements such as residing in Turkey and not being employed full-time in a public institution underscore the expectation that these individuals will be available and dedicated to their board responsibilities.
Given that independent members are not involved in the execution of daily business operations, their potential liability arises not from managerial functions, but from failures in oversight, supervision, and transparency. In this regard, they may be held accountable under Article 553 TCC for negligent performance of their duties, particularly in their roles within board committees.
Where independent members possess the authority to block decisions (e.g., via negative votes or committee objections), they may be held liable if they fail to exercise such authority diligently, or if they provide incomplete, inaccurate, or negligent information to the board in the course of deliberations. If damage occurs as a result of such breaches of duty, liability may arise under the standard of care expected from a prudent board member.
Independent members are expected to cast their votes based on thorough and well-informed analyses. In cases where they vote against a resolution, they should clearly state their reasons and ensure that such dissent is recorded in the meeting minutes. Arbitrary or unsubstantiated objections that obstruct decisions aligned with the company's interests may also be viewed as a breach of duty.
Although independent directors serve in a non-executive capacity, they provide strategic guidance through their participation in committees such as audit, corporate governance, and risk management. While they do not directly participate in final decision-making, they can still influence board deliberations and are thus expected to fulfill their roles with care, attention, and integrity.
Some scholars maintain that members of the audit committee, in particular, may incur liability if the company suffers harm due to systemic failures in internal control or independent audit mechanisms under their oversight. In this context, the scope of liability is tied to whether the harm can be causally linked to the committee's inaction or defective supervision.
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.
