Board of Directors in Joint Stock Companies

I. The Concept and Qualification of the Board of Directors in Joint Stock Companies

The Board of Directors in Joint Stock Companies is generally regulated in the Second Chapter of the Fourth Part of the Second Book of the Turkish Commercial Code (Commercial Companies).

The legal responsibility of the Board of Directors in Joint Stock Companies is among the provisions of 549-563 of the Turkish Commercial Code; penal responsibilities are regulated in article 562 of the Turkish Commercial Code.

The Board of Directors in Joint Stock Companies is one of the legal and mandatory organs of the joint stock company and is the management and representation body of the company. (Turkish Commercial Code Article 359/1 and 365/1 of the Turkish Commercial Code) The Board of Directors is a permanent board body; a real or legal person can be a member of the board of directors.

In Joint Stock Companies, there is no subordinate-superior relationship between the Board of Directors and the general assembly. It is clear that the board of directors is an independent body with inalienable duties and powers.

II. Organization of the Board of Directors in Joint Stock Companies

A. Number of Board Members in Joint Stock Companies

In Joint Stock Companies, the Board of Directors may consist of one or more persons. It is also possible for a member of the board of directors to be a legal person.

In joint stock companies regulated by special laws, the number of members of the board of directors is specially regulated. (Article 23/1 of the Banking Law, Article 4/1 of the Insurance Law, joint stock companies that adopt corporate governance principles consist of at least five people.)

According to article 339/2-g of the Turkish Commercial Code, the “numbers” of the members of the board of directors must be indicated in the articles of association.

B. Selection of Board Members in Joint Stock Companies

In joint stock companies, the members of the board of directors are selected by the founders with the articles of association and later by the general assembly.

However, it is always possible to replace the representatives appointed by public legal entities that are members of the board of directors in joint stock companies, by public legal entities that are members of the board of directors.

According to article 363/1 of the Turkish Commercial Code, in case one of the members of the board of directors loses his title as a member, the board of directors may select a temporary member of the board of directors. However, if the meeting quorum is not met, it is not possible for the board of directors to elect temporary members. In this case, the board of directors will call the general assembly meeting with the permission of a single shareholder court, according to article 410/2 of the Turkish Commercial Code, and take a general assembly decision to appoint new members to the vacant memberships.

C. Qualifications for Selection of Members of the Board of Directors in Joint Stock Companies

Article 359/3 of the Turkish Commercial Code stipulates that the members of the board of directors and the real person to be registered on behalf of the legal entity must be fully qualified. Apart from this, the criteria sought for persons to be elected as members of the board of directors can be regulated by the articles of association. However, conditions that deviate from the principle of mandatory provisions stipulated in Article 340 of the Turkish Commercial Code should not be set as the criteria for membership.

According to article 363/2 of the Turkish Commercial Code; The membership of the person who loses his membership qualifications arising from the bankruptcy, restriction of the law or the articles of association terminates automatically without the need for any action.

Unless there is a special provision in the articles of association, conditions such as being a shareholder, being a Turkish citizen, having a residence in Turkey, education and profession are not required for the membership of the board of directors.

D. Term of Office of the Members of the Board of Directors in Joint Stock Companies

According to article 362 of the Turkish Commercial Code, members of the board of directors can be selected for a maximum of three years. Unless there is a contrary provision in the articles of association, it is also possible to re-elect the members of the board of directors.

Duties and powers of the board of directors and its member whose term of office expires also terminate automatically. However, if the temporary board member cannot be re-elected at the next general assembly meeting, his term of office will end with the decision of the general assembly.

E. Eligibility Qualifications of the Members of the Board of Directors

Article 359/3 of the Turkish Commercial Code stipulates that the members of the board of directors and the real person to be registered on behalf of the legal entity must be fully qualified. Apart from this, the criteria sought for persons to be selected as members of the board of directors can be regulated by the articles of association. However, conditions that deviate from the principle of mandatory provisions stipulated in Article 340 of the Turkish Commercial Code should not be set as the criteria for membership.

According to article 363/2 of the Turkish Commercial Code; The membership of a person who loses his membership qualifications arising from the bankruptcy, restriction of the law or the articles of association terminates automatically without the need for any action.

Unless there is a special provision in the articles of association, conditions such as being a shareholder, being a Turkish citizen, having a residence in Turkey, education and profession are not required for the membership of the board of directors.

F. Representation of Certain Groups on the Board of Directors

According to Article 360 ​​of the Turkish Commercial Code: “(1) Provided that it is stipulated in the articles of association, certain share groups, shareholders forming a certain group with their characteristics and qualifications, and the minority may be granted the right to be represented on the board of directors. For this purpose, it may be stipulated in the articles of association that the members of the board of directors will be elected from among the shareholders forming a certain group, certain share groups and the minority, or the right to propose a candidate for the membership of the board of directors may be granted in the articles of association. If there is no justifiable reason, it is obligatory for the candidate proposed by the general assembly to be a member of the board of directors or the candidate belonging to the group and minority to which the right is granted, to be elected as a member. The right to be represented in this way cannot exceed half of the number of members of the board of directors in public joint stock companies. The regulations regarding the independent members of the board of directors are reserved. (2) According to this article, the shares granted the right to be represented on the board of directors are considered privileged.”

The expression “with their characteristics and qualifications” brought before the expression “shareholders forming a certain group” in the first paragraph of the article is intended to define the shareholders forming a certain group. The group that is authorized to represent in the board of directors must be defined in the articles of association.

Just like the shareholders forming a certain group and share groups, the minority must also be identifiable.

G. Termination of Board Membership in Joint Stock Companies

Membership in the board of directors may terminate automatically due to the loss of one of the membership qualifications specified in the law or the articles of association, expiration of the term of office, death, resignation or dismissal.

When the term of office of the members of the board of directors expires, their duties and powers arising from membership expire. Pursuant to article 410/1 of the Turkish Commercial Code, the sole authority of the board of directors, whose term of office has expired, is to call the general assembly for a meeting.

A member of the board of directors may terminate his/her duty by resigning, which is a unilateral declaration of will. The resignation statement, together with reaching the company, has consequences and consequences. Article 31/1 of the Turkish Commercial Code obliges the resignation to be registered in the trade registry. However, this registration process is descriptive, not constitutive. This means that as long as registration and announcement are not made, the title of a member of the board of directors and the loss of powers attached to this title cannot be brought forward against bona fide third parties.

According to article 364 of the Turkish Commercial Code, the board of directors can always be dismissed by the general assembly.

III. Duties and Authorities of the Board of Directors in Joint Stock Companies

According to article 365 of the Turkish Commercial Code, “Joint stock companies are managed and represented by the board of directors.” This provision expresses the most basic duty and authority of the board of directors. The management authority can be defined as the regulation of the internal relations of the company, and the representative authority can be defined as the regulation of the external relations.

A. Management Authority and Delegation

The management authority may be transferred in whole or in part to one or more of the members of the board of directors in accordance with Article 367 of the Turkish Commercial Code, with the exception of non-transferable duties and powers. It is also possible to delegate the management authority to a third person other than the board of directors.

In order for the management authority to be delegated, a provision allowing the transfer of management must be included in the articles of association, the decision of the board of directors must be taken in accordance with the provision in the articles of association, and an internal directive must be prepared, regulating the status, functioning, duties and definitions of the management to be taken as a result of the transfer.

In case the board of directors transfers its management authority, the oversight authority continues according to article 375/1-e of the Turkish Commercial Code. This means that it is not possible for the board of directors to get rid of responsibility by transferring its management authority.

B. Inalienable Duties and Powers

In Article 375 of the Turkish Commercial Code, duties and powers that cannot be transferred by the board of directors of joint stock companies are regulated. According to this;

Senior management of the company and giving instructions about them.

Determination of the management organization of the company.

Establishing the necessary order for accounting, financial auditing and financial planning to the extent required by the management of the company.

Appointment and dismissal of directors and persons with the same function and signatory authority.

Supervising whether the persons in charge of management act in accordance with the laws, articles of association, internal directives and written instructions of the board of directors.

Keeping the share book, board of directors resolution and general assembly meeting and negotiation books, preparing the annual report and corporate governance statement and presenting it to the general assembly, preparing the general assembly meetings and executing the general assembly resolutions.

Notifying the court in the presence of insolvency.

Except for article 375 of the Turkish Commercial Code, the board of directors has non-transferable duties and powers: Preparing the loyalty report stipulated in article 199 of the Turkish Commercial Code and the annual activity report regulated in article 516 of the Turkish Commercial Code, in cases where the company is suspected of being in debt, the obligations imposed on the board of directors in article 376 of the Turkish Commercial Code, the request of the board of directors to postpone the bankruptcy of the company, which is included in article 377 of the Turkish Commercial Code, are among the non-transferable duties and powers of the board of directors.

C. Power of Representation and Delegation of Representation

As a rule, the authority to represent the joint stock company belongs to the board of directors.

As with the management authority, it is possible to partially or completely transfer the representation authority to one or more of the members of the board of directors or to third parties. However, if the representation authority is transferred to third parties, it is obligatory that at least one member of the board of directors has the authority to represent, pursuant to the 370/2 provision of the Turkish Commercial Code.

While it is possible to share the management authority due to the fact that it is valid in internal relations, it is not possible to divide it as a rule due to the fact that the authority of representation concerns relations with third parties and the need to protect third parties. However, it is an exceptional rule that the power of representation can be reserved for one of the centers or branches. The limitation of the representation authority as of place can be asserted against third parties only with the registration and announcement made in the trade registry.

IV. Working of the Board of Directors in Joint Stock Companies

In Joint Stock Companies, the Board of Directors is a body that works as a “board”. Working as a committee means meeting within an agenda in accordance with meeting and decision quorum, making decisions by negotiating the issues and proposals, putting the decisions in writing, signing them and putting them in the decision book.

A. Distribution of Tasks

The Board of Directors selects a chairman among its members and at least one vice chairman who acts as the chairman in the absence of the chairman every year.

The distribution of duties only means the election of the president and his deputies. There is no obligation to prepare an internal directive as in the management period.

B. Authority and Procedure of Invitation to the Meeting

Board meetings are held with the invitation of the chairman of the board of directors. In the absence of the chairman, he invites the board of directors to meet. In accordance with article 392/7 of the Turkish Commercial Code, the members of the board of directors are not authorized to call another meeting as a rule. However, members may request an invitation to the meeting to the chairman or vice chairman. This request must be made in writing.

There is no special regulation in the Turkish Commercial Code for the invitation of the board of directors to the meeting. If all members of the board of directors are allowed to attend the meeting, the invitation will be deemed to have been made.

C. Board of Directors Meeting and Meeting and Decision Quorums in Joint Stock Companies

The principle of adherence to the agenda is not in question at the Board of Directors meetings in Joint Stock Companies. It is possible to take a decision on a subject that is not on the agenda at the meetings of the board of directors or to add an item to the agenda later.

Board of Directors in Joint Stock Companies pursuant to article 390/1 of the Turkish Commercial Code; Unless a heavier quorum is stipulated in the articles of association, it will convene with the majority of the total number of members. The decision quorum is the majority of the members attending the meeting.

Each member has only one vote at the board meetings. Article 390/3 of the Turkish Commercial Code stipulates that any member or chairman will have more than one vote, or that the vote will be deemed superior in case of equality, and the provision of the articles of association will be invalid. It is not possible for the members of the board of directors to vote or send a proxy to the meeting. In other words, the members of the board of directors are obliged to attend the meetings in person in accordance with article 390/2 of the Turkish Commercial Code.

Article 390/4 of the Turkish Commercial Code allows decisions to be taken without holding a board meeting. It is obligatory that at least the majority of the total number of members participate in the proposal made in order to take a decision based on this exceptional rule, and this proposal must be made to all members of the board of directors. Finally, all of the approval signatures must be affixed to the decision book.

D. Prohibition of Attending the Meeting

Pursuant to Article 393 of the Turkish Commercial Code, a member of the board of directors is responsible for matters that conflict between the personal and non-company interests of one of his/her descendants, his/her spouse or one of his/her spouse or one of his/her relatives up to the third degree, including the third degree, and the interests of the company cannot participate in the negotiations.

Members who do not object to the participation of the relevant member in the meeting when the conflict of interest exists and is known objectively with the members acting in violation of the prohibition, and the members of the board of directors who decide to attend the meeting of the member in question are responsible for the compensation of the loss incurred by the company for this reason.

V. Invalidity of Board of Directors Decisions in Joint Stock Companies

A. Non-Existence

The absence of mutual and compatible declarations of will, which constitute the founding elements of the contract is non-existence.

Although there is no provision in the Turkish Commercial Code regarding the non-existence of the resolutions of the board of directors, the non-existence of even one of the founding elements of the resolutions of the board of directors or taking a decision on a matter that is not under the duty and responsibility of the board of directors will face the sanction of absence. For example; Decisions taken without meeting quorum or the absence of the signatures of the members in the meeting minutes of the board of directors are examples of non-existence.

B. Nullity

In Article 391 of the Turkish Commercial Code, the cases where the decisions of the board of directors are void are listed by analogy:

Decisions contrary to the principle of equal treatment.

Decisions that do not comply with the basic structure of the company or do not observe the principle of protection of capital.

Decisions that violate the inalienable rights of the shareholders or that restrict or make it difficult to exercise them.

Decisions falling within the inalienable powers of other bodies and regarding the transfer of these powers.

Nullity decisions of the board of directors cannot be valid from the beginning and it is not possible to make these decisions valid later.

C. Remittal (Cancel)

According to article 391 of the Turkish Commercial Code, it is not possible to cancel the decisions of the board of directors. However, there are two exceptions in the Turkish Commercial Code that allow the decisions of the board of directors to be cancelled. The first of these is the decisions taken on mergers, divisions and conversions in the article 192/2 of the Turkish Commercial Code; The second one is the situations where the issuance of privileged shares or above the nominal value limits the right of the shareholders to purchase new shares, provided that the board of directors is authorized by the articles of association in accordance with Article 460/5 of the Turkish Commercial Code.

VI. Rights and Obligations of Members of the Board of Directors in Joint Stock Companies

A. Rights of Board Members in Joint Stock Companies

1. Administrative Rights

The administrative rights of the members of the Board of Directors in Joint Stock Companies come from the management and representation authority they have. The members of the board of directors have administrative rights to attend the board of directors meetings, to make a written request from the chairman if they want a meeting to be called, to receive information about the business and operation of the company, and to file a lawsuit for the annulment of the general assembly resolutions.

2. Financial Rights

The financial rights of the members of the board of directors are regulated in article 394 of the Turkish Commercial Code. According to this; it is possible for the company to make payments to the members of the board of directors under names such as wages, attendance fees, premiums, bonuses, provided that it is determined by the articles of association or by the decision of the general assembly.

Unless otherwise stated in the articles of association, each member attending the meetings of the board of directors will be paid an attendance fee determined by the articles of association or the resolution of the general assembly for each meeting he attends. Along with the right of attendance, the payment of remuneration to each member in certain periods may also be determined by the articles of association or by the decision of the general assembly. It is also possible to pay premiums and bonuses to members without the condition of providing a benefit to the company.

B. Obligations of the Members of the Board of Directors

1. Management and Oversight Obligation

In Joint Stock Companies, the management and supervision obligation of the board of directors is an administrative right as well as an obligation. The company’s senior management and oversight obligation is counted as one of the non-transferable duties and powers specified in Article 375 of the Turkish Commercial Code.

2. Duty of Care

Members who manage the company are required to exercise care while performing their duties. Article 369 of the Turkish Commercial Code stipulates the degree of due diligence as the care expected from a “prudent manager”.

3. Duty of Loyalty

In joint stock companies, there is a contractual relationship between the members of the board of directors and the company. For this reason, the members of the board of directors who will manage and represent the company must maintain the trust the company has in them. This trust can also be maintained by paying attention to the duty of loyalty.

Situations such as not transferring the company’s trade secrets to the outside and not putting personal interests in front of the company’s interests can be shown as the main examples to duty of loyalty.

4. Prohibition of Transactions and Borrowings with the Company

Article 395 of the Turkish Commercial Code forbids the members of the board of directors to take any action with the company on behalf of themselves or anyone else without obtaining permission from the general assembly. Non-shareholder members of the board of directors and non-shareholders specified in article 393 of the Turkish Commercial Code cannot borrow money from the company. It is also prohibited for the company to provide surety, guarantee or collateral for these persons.

5. Prohibition of Competition

The prohibition of competition can be defined as the inability of the members of the board of directors to carry out commercial transactions that fall within the scope of the company, for himself or for someone else’s account. The prohibition of competition is regulated in article 396 of the Turkish Commercial Code. Accordingly, the members of the board of directors will not be able to enter a company dealing with the same type of commercial business as the company, as partners with unlimited liability.

According to Article 396 of the Turkish Commercial Code, the company may demand compensation from a member of the board of directors who violates the prohibition of competition, may request that the transaction be deemed to have been made on behalf of the company, or, if there is a contract made on behalf of a third party, sue for its belonging to the company.

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