In limited companies, the management authority belongs to a single person holding the title of director or to more than one person. The director or directors can be chosen from among the partners of the company, and it is legally possible to elect a completely foreign person to the company as a manager. As the managing body of the limited company, the director or directors have certain duties and powers in the company. Some of these are regulated in the Turkish Commercial Code as the inalienable duties and powers of the director or directors. Again, it is possible to make a regulation on this subject in the company contract.
In this bulletin, the function of the director or directors in a limited company is discussed and their areas of authority are explained in general manner.
İçindekiler
1) Management in Limited Companies
The management and representation of limited companies should be regulated in the company’s articles of association. As a matter of fact, according to Article 623 of the Turkish Commercial Code, “The management and representation of the company is regulated by the company contract. By the Company’s Articles of Association, the management and representation may be given to one or more partners holding the title of director, or to all partners or third parties. As the body holding the management authority in limited companies, the director or directors must either be set out in the company’s Articles of Association or elected by the General Board resolution and then registered in the trade registry.
As the managing body of the limited company, the directors are authorized to take and execute decisions on all management-related matters that are not left to the General Board by the law or the company’s Articles of Association. In this aspect, they are both the managing and the executive body of the company.
2) The Inalienable Powers of Managers
In the new form of the Turkish Commercial Code, a distinction was made between the organs in the company in terms of function, and the principle of equivalence between the organs in terms of power was adopted. General Board is no longer authorized in all matters and has no authority to take all decisions, within the legal systematics and the limited company organ scheme.
In Article 625 of the Turkish Commercial Code, which is a relatively new provision, the inalienable powers of the director or the Board of Directors in limited companies are listed as follows;
- Senior management of the company and giving necessary instructions.
- Supervision of the persons to whom some parts of the management of the company have been transferred, whether they act in accordance with the laws, articles of association, bylaws and instructions.
- Determination of the company management body within the framework of the law and company agreement.
- Preparation of company financial statements, annual report and, if necessary, group financial statements and annual report.
- Preparation of the General Meeting and execution of the General Board resolutions.
- Establishment of accounting, financial auditing and financial planning, if necessary for the management of the company.
- Establishment of the committee for early detection and management of risks, excluding small limited companies.
- Notifying the court of the company’s insolvency
It is not possible to authorize a different body or person within the company regarding the duties and authorities listed above. Directors shall not delegate these powers to the General Board or to other boards, bodies or committees to be established, neither by the Articles of Association nor by a decision. It is also forbidden for directors to waive these powers. Because the provision is imperative. However, in the continuation of the article of the Law; the company contract regulates that it can be foreseen that director or directors shall submit certain decisions they have taken and individual problems to the approval of the General Board. However, even if such an approval stage is set, this situation will not eliminate and limit the responsibility of the directors for the General Board approval for the decisions taken. In other words, the principal authority and responsibility still belong to the directors.
3) The Concept of Senior Management
If it is necessary to focus on what should be understood by the “senior management” in the first paragraph of Article 625, it will be necessary [1]to make use of the qualification in the justification of the Law. Accordingly, what is meant by “top management” is to decide on the objectives of policies such as investment, financing, dividends, especially the general business policy, to show the tools chosen to achieve them, to determine whether or not the targets have been reached or not, to control the budget implementation and to determine the strategies. Decisions on the achievement of policies and objectives and instructions regarding the implementation of strategies can also be given by the director or the board of directors.”
4) Distribution of Duties in the Presence of More Than One Director
If the company has more than one director, one of them, whether he or she is a partner or not, is appointed as the chairman of the Board of Directors by the General Board. If there is only one director in the company, this person; if there is more than one manager, the chairman of the Board of Directors is authorized to call and conduct the General Meeting. These persons are also authorized to make all explanations and announcements unless the General Board decides otherwise or there is no other regulation in the Articles of Association (TCC art.624).
6) Representation in Limited Companies
Director or directors is authorized to represent the limited company. The relevant provisions regarding joint-stock companies are applied by analogy to the extent of the representation powers of the directors, the limitation of the authority, the determination of the authorized signatories, the way of signing and their registration and announcement. According to the first paragraph of the relevant provision, those who are authorized to represent the joint stock company can carry out all kinds of business and legal transactions on behalf of the company that fall within the scope of the company’s purpose and business. Although the field of operation is mentioned in the first paragraph of the provision, in the new version of the Turkish Commercial Code, the “ultra vires” rule has been abolished regarding the power of attorney of the company. In the second paragraph, the regulation on this issue is also included promptly. Accordingly, the power of attorney is no longer determined solely by the field of operation of the company. In other words, since the transactions that do not fall within the scope of the company’s purpose and operation will also bind the company and the company will be liable to third parties with this transaction, the company has the right of recourse to the representative who exceeds the limit of the power of attorney. The exception to this situation is when it is proved that the third party knows that the transaction is outside the scope of the business or is in a position to know the situation, as required. In this case, the transaction will not bind the company. However, the announcement of the Articles of Association of the company is not considered sufficient evidence on its own in terms of proving this matter.
The decision showing the representation ways and names of those authorized to represent the company must be registered and announced in the trade registry. Even though the representation of the representatives, that is, the limits and extent of their representation powers, is registered in the trade registry, this situation will not bind the bona fide persons transacting with the company. Because, in the trade registry, only the limiting power of attorney limited to the double signature (or joint signature) or limited to the head office or branch business shall be registered. A registration to be made on other subjects shall have no effect against third parties. In case of dispute, the extent of the representation authority of the directors is determined according to the registration made in the trade registry and the announcement made in the Trade Registry Gazette;
“…establishment of the non-litigation company by being announced in the Trade Registry Gazette dated …, that thee founding managers are …and… according to the Articles of Association, assigning all three founding members as a company director for three years, and representing and binding of the action by the joint signature, no other decision regarding the representation of the company from the documents coming from the Trade Registry Directorate, “…the non-litigation company established by being announced in the Trade Registry Gazette dated … thee founding managers are …and… according to the Articles of Association, assigning all three founding members as a company director for three years, and representing and binding of the action by the joint signature, no other decision regarding the representation of the company from the documents coming from the Trade Registry Directorate, accordingly, representing the founding partners specified in the articles of association by the non-litigation company as the director and the valid signatures of endorsements on behalf of the non-litigation company on the checks , endorsement with a single signature on behalf of the company on the checks other than the ones having the value of 139.000.- TL, and accepted underrepresentation since no objection was raised by the company managers regarding the endorsement signature and representation…”
If the limited liability company has a single partner, in the contracts to be made between the company and this partner, whether the company is represented by one partner or not at the time of the contract, the validity of the contract between this partner and the company depends on the fact that the contract is made in writing. This obligation does not apply to contracts relating to daily, insignificant and ordinary transactions according to market conditions.
Finally, the authority to dismiss, withdraw and limit the authority of management and representation belongs to the General Board. The General Board may dismiss the director or directors, and limit the right to manage and the authority to represent.
Conclusion
The authority of management and representation in limited companies belongs to the director or the Board of Directors. As a rule, the limited company shall be responsible for the transactions that the authorized representatives will make on behalf of the company, whether they are related in the field of business or not. It is possible to argue and prove the contrary in exceptional cases. The issue is important because it concerns the company’s responsibility for the actions taken by the representative and the right of recourse.
You can contact our team for your legal questions and problems regarding the power of attorney and representation authority of the director or the board of directors.
Best Regards.
Solmaz Law and Consultancy Team.
References
ALTAŞ, Soner, (2016), Türk Ticaret Kanunu’na Göre Limited Şirketler, Seçkin Yayıncılık, p.152-162.
BİLGİLİ, Fatih/DEMİRKAPI, Ertan, (2013), Şirketler Hukuku Dersleri, Dora Yayıncılık, p.396-399.
11th Civil Chamber of the Supreme Court, 2020/2031 E., 2021/3467 K.
Turkish Code of Commerce
Trade Registry Regulation.
[1] (Article 375 is the adapted form of the reasoning on the Board of Directors of joint-stock companies. Since the management in stock corporations does not differ much, what should be understood from the senior management is similar.)
