Responsibilities of members of the board of directors of a corporation – Shareholders
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The management and representation of joint-stock companies are ensured by the board of directors. Therefore, the board of directors is considered to be one of the most important organs of joint-stock companies with the widest powers of representation. In this context, the company is managed and represented by the board of directors for the duration of a joint-stock company.
The members of the board of directors have certain responsibilities resulting from the exercise of their functions of management and representation of the company. . In case of breach of these obligations with fault, according to the provision of Article 553/1 of the Turkish Commercial Code No. 6102 (“TCC”); directors can be held liable for damages they cause to the company, shareholders and creditors of the company.
B. GENERAL OBLIGATIONS ARISING FROM THE LAW
The members of the Board of Directors are subject to the obligations provided for in the GC, as soon as they are elected to the Board of Directors. In addition to the obligations provided for in the GTC, it is possible to impose other obligations on them through the company’s articles of association. This article will only address some of the general duties of the board under ICC and the standard of care that should be exercised by board members. We would like to note that there are other obligations imposed by the in accordance with the particular provisions of the CLC or market-specific laws and regulations that may be applicable depending on the areas of activity of the company.
General Management and Supervision of the Company
As the board of directors is the company’s executive body, the directors are responsible for participating in the company’s management decisions and ensuring that these decisions are carried out. This obligation does not extend to an interpretation meaning that decisions concerning all types of operations of the company in minute detail are given or supervised strictly by the board of directors. Indeed, with the expression “senior management” within the meaning of TCC 375/1/a and the expression “senior supervision” within the meaning of TCC 375/1/e gives an idea of the extent of the involvement of the board administration in management and oversight.
Do not enter into any transaction with the company and do not borrow from the company
In accordance with TCC 395/1, the members of the board of directors may not enter into any transaction with the company on their behalf or on behalf of anyone else without the authorization of the general meeting; otherwise, the company may claim that the transaction is invalid. On the other hand, the aforementioned board member claims that the transaction is invalid.
Under the second paragraph of the same article, directors other than shareholders are prohibited from borrowing cash from the company. Similarly, it is clearly regulated that the company cannot stand surety, guarantee and insurance for non-shareholder directors and cannot take over the debts of these directors. In the event of a breach of this obligation, the TCC allows the creditors of the company to initiate legal proceedings directly against the directors concerned concerning the respective sums due to the company.
Non-competition with the Company
In accordance with article 396/1 of the CGI, directors are prohibited from directly or indirectly carrying out commercial business falling within the scope of the company’s activity. The directors may only carry out the aforementioned operations in accordance with the law with the authorization of the general meeting or in the event that the company’s articles of association provide for such a provision allowing the directors to compete with the company. Without the authorization of the general meeting, the director who exercises commercial business within the scope of the company’s field of activity, will violate this obligation.
Duty of vigilance and obligation of loyalty
In accordance with article 369/1 of the CGI, directors are required to exercise their functions with the care of a prudent manager and to protect the interests of the company. The directors are required to respect this duty of care, both in the performance of their obligations resulting from the law or the articles of association and in the exercise of the management and representation of the company. According to the logic of Article 369 of the CLC, a “prudent manager” mentioned in the Code must be considered within the framework of “business judgment rulea term that has its roots in American commercial law. In this context, the mere fact that a decision of the board of directors turns out to be unfavorable to the company does not engage the responsibility of the board of directors. If the members of the board of directors can demonstrate that they exercised the diligence expected of a prudent businessman and that they made an informed decision, obtaining the technical, financial and legal requirements and that they have acted in the best interests of the company in their opinion even if the outcome of the decision is unfavorable to the benefits of the company, such a judgment cannot be considered a breach of the duty of care. However, it should be pointed out that the business judgment rule is a foreign principle in Turkish law, as it originated from the Common Law system. Accordingly, high court judgments should shape the application of this rule.
Article 369/1 of the ICC also regulates the duty of loyalty. This obligation is imposed by the following part of this article:protect the interests of the company in compliance with the rule of honesty”. Members of the board of directors are required to give priority to the interests of the company and to avoid actions that could harm the company in the exercise of the management and representation of the company. In addition, directors have confidentiality obligations arising from their loyalty obligations.
C. BREACH OF DUTY AND LIABILITY
If the members of the board of directors violate their obligations arising from the law or the articles of association through fault and the company, the shareholders or the creditors suffer damage as a result of this violation, the members of the board of directors at fault are liable for responsible. If the damage to the company has occurred, the company or each shareholder has the power to sue for damages. In this case, the court will decide on the amount of compensation to which the company is entitled. If the damage is caused directly to the shareholder or to the creditor concerned, the shareholder or the creditors have the power to demand that the indemnity be paid to them directly. If several members of the council are responsible for the damage, the responsibilities of these members of the council are determined in proportion to their respective faults at the origin of the damage.
The civil liability action against the directors must be brought before the Commercial Courts of First Instance of the location of the company’s registered office. The limitation period for this action is governed by Article 560 of the ICC as follows:
“The right to claim compensation from those responsible is prescribed by two years from the date on which the plaintiff became aware of the damage and of those responsible, and in any case five years from the date of occurrence of the event which caused the damage. shame. Insofar as this act requires punishment under criminal law and is subject to a longer statute of limitations under the Turkish Penal Code, this statute of limitations shall apply to the compensation case.
In the event that the members of the board of directors of the company violate their obligations arising from the law and the articles of association, they are responsible for compensating the damages of the company, the shareholders or the creditors as a result of this violation. The question of whether fault is attributable to the members of the board of directors must be determined according to the “business judgment rule” imported from the common law system into Turkish law.
Originally published February 16, 2022
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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