ASSESSMENT OF RESPONSIBILITIES OF PARTNERS AND COMPANY MANAGERS REGARDING OBLIGATION OF LOYALTY AND PROHIBITION OF COMPETITION TERMS IN LIMITED COMPANIES

Summary: Limited companies are established as capital companies and they are considered legal entities starting with the moment of their establishment. Starting at this very moment, it was attempted to have the shareholders and managers understand the rights and limits of the personality of the capital company by reminding them of the obligations such as secrecy, loyalty, and non-competition to have them remember the gravity of the situation. However, although some responsibility was imposed upon them, the partners were also allowed to remove these limits in some cases.

Keywords: prohibition of competition, the obligation of loyalty, confidentiality, the abolition of the prohibition of competition, the non-competition obligation of partners, non-competition obligation of managers, 

Introduction:

The Turkish Commercial Code No. 6102 includes many issues that were not regulated before. The most important of these is the regulation on the prohibition of competition. Since the obligation of loyalty and the impact area for managers have arisen afterward, it is useful to examine the prohibition of competition in this context. The Commercial Code imposes responsibilities and limitations on the limited company partners due to their partnership and grants certain rights to company managers similarly. The reason for this is to remind individuals that, although a capital company is being established, the company in question also is a legal entity with rights and liabilities. Therefore, the company that was established not only exists on paper, but its existence was also introduced as an actual and de-facto reality. In other words, its personality was proven. In this article, we will examine the limits of the personality of the limited company with the context of the competition criteria.

1. Confidentiality and Obligation of Loyalty

Since each knowledge, experience, and knowledge acquired by the companies while they are continuing their activities has an economic value both for themselves and for the market, it was believed by the legislator that a separate regulation was a necessity. As such, Article 613 of the Turkish Commercial Code stated in a mandatory provision that the confidentiality obligation cannot be removed by articles of association or via decisions taken by the general assembly. Moreover, it has been stated that the shareholders cannot behave in a way that may damage the interests of the company. In particular, they cannot carry out transactions that provide a special benefit for them and harm the goals of the company. In this context, the question to be asked is the question regarding the nature and quality of the secrets that a company should keep. The confidentiality obligation is also regulated in confidentiality agreements. However, the extent to which information should be kept confidential and, most importantly, which information should be kept confidential remains a matter of debate. Similarly, under article 613 of the Turkish Commercial Code, the fact that the term “secret” was not defined was justified by stating that its definition may change according to circumstances and it must be determined by court and case law. The doctrine regarding this matter includes opinions that claim that it is not important whether the secret has monetary value or not.

The important issue to be considered within the scope of the same article is the obligation of loyalty. In this context, the phrase “not to act in a way that may damage company interests” was included. According to the provision of the article, actions, and transactions against the company that will hinder or denigrate the company and adversely affect the continuation of its activities can be evaluated within this scope. While determining the scope of the obligation of loyalty, the emphasis was placed on the matter of providing benefits to one’s self and damaging the company’s goals. In this context, although the scope of the liability of loyalty has been kept flexible, it has also been emphasized that violations regarding it will not be limited to self-benefits coupled with damage to the company’s goals. Under present circumstances, it is understood that each event shall be evaluated on its own, and decisions for each shall be made by considering the interests of the company without any limitations regarding subjects coming under scrutiny.

The regulation of the confidentiality and loyalty obligation aims to remove the risks of confidential information acquired by the partners within the scope of their right to obtain and review information, even if such matters were not regulated by the contract.

2. Obligations Regarding Prohibition of Competition

Regarding the regulation of confidentiality and loyalty obligations, there are opinions within the doctrine that state the loyalty obligation is limited by the prohibition of competition.   The article justification has the similar approach. According to the justification, with the principle of limited liability, the fact that the partnership rights are bound to the capital cannot justify the legal prohibition of competition in the limited company. For this reason, there is no prohibition of competition against the partner if it is not stipulated in the company agreement. If there is no clear provision in the contract, a prohibition cannot be applied based on the obligation of loyalty. Here, “providing a special benefit” and “damaging the goals of the company” are conditions that complement each other.    

In addition to this regulation, it was allowed to lift the prohibition of competition with the loyalty obligation. In the cases where the partners give written consent, transactions violating loyalty and prohibition of competition are allowed. There is an opinion that the main purpose of the provision of this article is to protect the creditors. According to this opinion, the obligation of confidentiality is directly related to the assets of the partnership. Information requiring confidentiality is important not only for partners but also for creditors. Therefore, we agree with the view that if the confidentiality obligation was regulated in a similar manner to loyalty and non-competition obligations in Article 613/4 of the Commercial Code, the partners would be able to inflict damage to the creditors with their decisions.

The main reason for the prohibition of competition is to prevent the economic activities of the partners outside the partnership or to prevent them from damaging the company with the information they have acquired during their stay in the company. In this context, since the partners have the right to obtain and examine information, the purpose was to prevent them from stealing the company customers and damaging the partnership via the information they have obtained. Naturally, while making this arrangement, it was deemed necessary to make a separate regulation for company managers.

According to the regulation stated under article 626 of the Commercial Code, company executives are also subject to a prohibition of competition. The limits of this prohibition are also determined under the same article. The scope of the prohibition of competition is subject to the written approval of the partners. Which means that, unless otherwise stipulated in the articles of association or the written consent of all other partners is given, managers cannot engage in any activities that may constitute competition with the company. The articles of association may prescribe the approval of the general assembly instead of the approval of the partners. The removal of the prohibition of competition by company partners and managers is also subject to similar conditions. By taking the necessary decision, the shareholders of the company can remove the prohibition of competition from themselves or the managers. However, this is not recommended as it is not suitable to the interests of the company.

Result:

Partners and managers have been reminded that limited companies, which are capital companies, have confidentiality and loyalty obligations, starting from the moment of their establishment. However, both in practice and in the doctrine, the limits of the confidential information and the scope of regarding its evaluation was left to the courts to consider on a case-by-case basis. In our opinion, establishing stable precedents regarding this matter will take many years. The main issue here is that the prohibition of competition is limited by the obligation of loyalty, while the obligation of loyalty is limited by the prohibition of competition. Although they seem to be distinct from each other, they are intertwined and interdependent. Separate provisions and exceptions are also regulated within this scope. In our humble opinion, these concepts should be analyzed holistically and completely and the matter of lifting the related prohibitions should be implemented.

ATTORNEY BURCU SOLMAZ,L.LM

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