The board of directors, which is another mandatory organ in joint stock companies other than the general assembly, and which has the duties of management and representation of the company against outsiders, is regulated under Articles 359 et seq. of the Turkish Commercial Code No. 6102. In general, the board of directors of a joint stock company may consist of at least one member, and the term of office of the members may be determined between 1 and 3 years.
In this study, the civil and criminal liability of the members of the board of directors of joint stock companies will be discussed in general terms.
LEGAL LIABILITY
Unlike the old Turkish Commercial Code No. 6762, the new Turkish Commercial Code does not divide the legal responsibilities of the members of the board of directors into two separate categories as pre-incorporation and post-incorporation responsibilities. Under the current Turkish Commercial Code, the legal responsibilities of the members of the board of directors are regulated under Articles 549 to 552. The cases of liability under these articles are regulated as follows: violation of the law with respect to documents and declarations, misrepresentations about the share capital, and knowledge of insufficient payment, corruption in valuation, and collecting money from the public. Furthermore, Article 553 of the Law addresses the liability of the founders, members of the board of directors, managers and liquidators in the event that they negligently breach their obligations arising from the law and the articles of association, and in this case, it is stipulated that these persons will be liable for the damages they cause both to the company, the shareholders and the creditors of the company.
a) Unlawfulness of Documents and Declarations (Article 549 of the TCC);
Pursuant to this provision, the issuers of the documents, prospectuses, undertakings, declarations and guarantees related to the establishment of the company, increase and decrease of its capital, merger, demerger, change of type and issuance of securities are liable for the damages arising from false, fraudulent, forged, untrue, concealment of the truth and other unlawful acts, as well as those who issued the documents or made the declarations and those who participated in them in case of their fault.
b) Misrepresentations about the Capital and Knowledge of Insufficiency of Payment (Article 550 of the TCC);
Those who have not fully subscribed for the capital of the joint stock company or have not paid for it in accordance with the provisions of the law or the articles of association, and those who pretend that the capital of the joint stock company has been subscribed or paid, and the company officials, provided that they are at fault, shall be deemed to have undertaken these shares and shall jointly and severally pay the equivalent of the shares and the damages together with interest. In addition, persons who are aware of the insolvency of the capital subscribers and authorise the same shall also be liable for the damages arising from the non-payment of the debt in question.
c) Corruption in Valuation (Article 551 of the TCC);
The third one of the cases of legal liability is the fraud in the valuation of the assets or businesses to be taken over. We observe that this situation, which is regulated under Article 551 of the TCC, creates misunderstanding in commercial life in two ways. The first one is that it creates a misunderstanding against the company. If the value of the bearer and the business to be taken over is overstated, the persons who will make transactions with the company will be mistaken about the company’s capital. Secondly, the company may be misleading internally. Accordingly, the owner of the overvalued property or business will have unjustifiably excessive shares in the company.
d) Collecting Money from the Public (Article 552 of TCC)
With this provision, without prejudice to the provisions of the Capital Markets Law, it is prohibited to collect money from the public by making a call by any means for the purpose of establishing a company or increasing the capital of the company or with the promise of doing so. Therefore, in case of unauthorised collection of money from the public, they will be held legally liable in accordance with this provision.
Apart from these cases of legal liability listed under four headings, pursuant to Article 553 mentioned above, the members of the board of directors may be held liable if they violate their obligations arising from the law and the articles of association with their faults. In this respect, the case where the board of directors, which is authorised to manage and represent the company, transfers the management of the company partially or completely to one or more members of the board of directors or to a third party should be evaluated. It should be noted that, pursuant to paragraph 1 of Article 367 of the Turkish Commercial Code, it is possible for the board of directors to delegate the management partially or wholly to one or more members of the board of directors or to a third party, pursuant to a provision to be included in the articles of association of the company and an internal directive to be issued by the board of directors. When Article 367 and Article 553 of the Law are evaluated together, the board of directors must exercise reasonable care in the selection of the bodies or persons to whom it delegates its powers. The board of directors is jointly and severally liable for any damage caused by these persons to the company and third parties.
Here, it is useful to refer to Article 371 of the Turkish Commercial Code. This article regulates the scope and limits of the powers of those authorised to represent the company. According to this article;
- Those authorised to represent the company may perform all kinds of works and legal transactions falling within the purpose and field of activity of the company on behalf of the company and may use the company title for this purpose. The company reserves the right of recourse due to transactions contrary to the law and the articles of association.
- Transactions made by those authorised to represent with third parties outside the scope of the company’s business shall also bind the company; provided that it is proved that the third party knows or is in a position to know that the transaction is outside the scope of the company’s business. The announcement of the articles of association of the company is not sufficient evidence alone to prove this matter.
- The limitation of the representation authority shall not be effective against third parties in good faith; however, the registered and announced limitations regarding the exclusive or joint exercise of the representation authority only for the affairs of the head office or a branch office shall be valid.
- The fact that the transaction made by the persons authorised to represent is contrary to the articles of association or the general assembly resolution does not prevent third parties in good faith from applying to the company due to that transaction.
- The company is liable for the wrongful acts committed by those authorised for representation or management during the performance of their duties. The Company reserves the right of recourse.
As a matter of fact, according to Article 205 of the Turkish Commercial Code, the members of the board of directors, executives and related persons who may be held liable cannot be held liable to the company and shareholders due to their compliance with the following instructions;
- If there is a controlling company, the board of directors of the controlling company may give instructions regarding the direction and management of subsidiaries, which may even lead to the loss of the subsidiary.
- These instructions must not clearly exceed the solvency of the subsidiary company, cause it to lose significant assets and jeopardise its existence.
Consequently, both the members of the board of directors and third parties in charge of management are obliged to fulfil their duties with the care of a prudent manager and to protect the interests of the company. Otherwise, legal liabilities of these bodies and persons may arise and compensation for damages may be claimed. Here again, it should be noted that the right to claim compensation from those responsible shall be time-barred after two years from the date the plaintiff learns of the damage and the responsible person, and in any case after five years from the day the act or acts giving rise to the damage occurred. However, if such act or acts require a separate penalty and are subject to a longer statute of limitations according to the Turkish Penal Code, this statute of limitations shall also apply to the claim for compensation. Finally, the competent court for a lawsuit to be filed against the members of the board of directors whose legal liability arises is the commercial court of first instance where the company’s head office is located.
