Under Turkish Commercial Code numbered 6102 ("TCC"), limited liability companies are capital companies and the management and representation of the limited liability companies are carried out by the board of managers. The TCC also contains regulations regarding the management and representation of limited liability companies. Pursuant to the TCC, the management and representation of limited liability companies shall be regulated by the articles of association of the company. The management and representation of the company may be assigned to one or more shareholders, which are also managers, or to all shareholders or third parties by the articles of association. However, in limited liability companies, at least one shareholder shall have the right to manage and represent the company.
The managers shall be appointed and authorized for all issues which are not reserved for the duty and authority of general assembly by law and the articles of association. The managers cannot delegate and dispense with the following duties and authorities:
- To execute ultimate direction and management; to give necessary instructions.
- To determine the company management organization in accordance with law and the articles of association.
- To develop accounting, financial auditing and financial planning when necessary for the management of the company.
- To supervise whether the persons to whom one or more divisions of company management have been entrusted are acting in accordance with law, articles of association, internal regulations and instructions.
- To establish a committee for early risk detection and management, except for small sized limited liability companies.
- To prepare the company's financial statements, annual report, and where necessary the group of companies' financial statements and annual report.
- To organize general assembly meetings and to execute general assembly resolutions.
- To notify the court should the company's liabilities exceed its assets.
The law-maker has not stipulated a maximum three-year term of office for the managers of limited liability companies, which is stipulated for the members of the board of directors of joint stock companies. Therefore, unless the articles of association of the company or the resolution of the general assembly, in which the managers are elected, specifies the term of office of the managers, the term of office of the managers is deemed to be unlimited. The term of office of real or legal persons who are appointed as managers without specifying any period of time may be terminated by a general assembly resolution. In addition, if there is no contrary provision under the articles of association, there is no prejudice in the re-election of the manager whose term of office has expired.
In addition to managing the limited liability company internally, the managers are also authorized to represent the limited liability company externally against third parties. The law-maker has referred to the provisions of the joint stock company in the regulations regarding the representation of the managers. Those who are authorized to represent can carry out on behalf of the company all manner of business and legal transactions within the purpose and scope of activity of the company and can use the trade name of the company for this purpose. The company reserves the right to recourse arising from transactions contrary to law and the articles of association. Transactions conducted with third parties outside the scope of activity by those who are authorized to represent the company shall bind the company, provided it is proven that the third party was aware that the transaction is outside the scope of activity or they were capable of being aware as a requirement of the situation. The announcement of the company's articles of association shall not be solely sufficient evidence to prove this matter.
Managers of limited liability company have obligations to fulfil towards the company. Managers and persons assigned to management are obliged to fulfil their duties with all due diligence and to observe the interests of the company within the framework of the good faith rule. Managers should avoid situations that are not in the best interests of the company. Within the scope of the duty of care, managers should not disclose company secrets to third parties. They may not engage in behaviors that may harm the interests of the company and managers are prohibited from engaging in transactions that provide special benefits to themselves and harm the purpose of the company. The duty of care and loyalty applies to all directors, whether or not they are shareholders of the company.
Unless otherwise stipulated under the articles of association or unless otherwise authorized in writing by all other shareholders, the managers may not engage in any activity that constitutes competition with the company. Article 626/2 of the TCC introduces a prohibition of competition for the managers. This provision is not introduced for the shareholders of limited liability companies, but only for the managers. However, shareholders may also be prohibited from competing with the company by an agreement. With this provision under Article 626/2 of the TCC, it is intended to prevent the managers from abusing the information they will obtain through their duties as managers in the company, and to protect the company. However, the TCC does not explicitly regulate the liability of the managers in case of violation of the prohibition of competition, and in the event of such a situation, the articles regulating the liability of the members of the board of directors will arise with reference to article 644 of the TCC.
One of the obligations of the managers is the obligation of equal treatment. Pursuant to article 627 of the TCC, managers are obliged to treat shareholders of limited liability company equally under equal conditions. At the same time, the managers are also obliged to notify them of the loss of share capital or the insolvency of the company, as in joint stock companies.
According to article 614 of the TCC, the managers are obliged to inform the shareholders about all affairs and accounts of the company. In the event that the managers fail to fulfil their obligation to provide information upon a shareholder's request for information, the relevant shareholder may bring the matter to the agenda of the general assembly, and if the general assembly is unjustly prevented from providing information, the relevant shareholder may apply to the court.
Article 644/f.1(b) of the TCC refers to Article 395/f.2 of the TCC in relation to the prohibition of directors' indebtedness to the company. However, when the wording of the article is analyzed, it is seen that this reference is made in relation to the relatives of the limited liability company managers. The majority opinion of the doctrine is that the prohibition of becoming indebted to company should be valid not only for the relatives of the managers, but also for the managers. Thus, the managers and their listed in Article 393 of the TCC cannot owe cash to the company. The company may not provide sureties, guarantees and collateral for these persons, assume liability, or take over their debts. However, it should be mentioned that the reference made under Article 644/f.1(b) of the TCC is limited to the first and second sentences of Article 395/f.2 of the TCC, and in the event of a breach of the provision stipulated in the third sentence, the provision foreseen for the company's creditors regarding the right to directly pursue the persons who owe the company an amount equal to the amount owed to the company will not be applicable in limited liability companies. Likewise, the absence of a reference to the relevant provision in the TCC regarding criminal liability will also prevent the imposition of a criminal sanction in case of violation of the prohibition of becoming indebted to company.
There is no special provision in the TCC regarding the prohibition of managers' transactions with the company among the provisions specific to limited liability companies. However, the doctrine accepts that the prohibition of the members of the board of directors of joint stock companies to conduct transactions with the company should also apply to the managers of limited liability companies. The acceptance of this prohibition is also considered as a consequence of the directors' duty of loyalty to the company.
The managers are liable for the transactions carried out in the company. In the TCC, the special liability provisions of the directors in limited liability companies are regulated by reference to the provisions of joint stock companies. Article 644 of the TCC determines the provisions applicable to limited liability companies from the provisions regulated under the title of joint stock companies. In this context, article 549 regarding documents and declarations being in contradiction with law; article 550 regarding false declarations concerning capital and awareness of payment deficiency; article 551 regarding corruption in valuation; article 553 defining the responsibility of founders, board members, managers and liquidation officer; articles 554 to 561 regarding the responsibility of auditors and operational auditors shall also apply for the limited liability companies.
Liability in case of documents and declarations being in contradiction with law: Pursuant to Article 549 of the TCC those who prepared the documents or made declarations, and those who participated in the preparation of the said documents and declarations, are responsible for the damages arising from incorrect, fraudulent, forged, sham, dissembled documents, pledges, commitments, declarations and guarantees, in relation to transactions, such as incorporation of the company, increase or decrease of capital, merger, division, conversion of the company type, and for other violations of law. The persons who prepared such documents are held liable regardless of whether they are at fault or not, while the participants are held liable in proportion to their fault.
Liability in case false declarations concerning capital and awareness of payment deficiency: Those who pretend that the share capital has been subscribed or paid when the share capital has not been fully subscribed or paid in accordance with the provisions of the law or the articles of association, and the company executives, provided that they are at fault, shall be deemed to have assumed these shares and shall jointly and severally pay the equivalent of the shares and the damages together with interest. Those who are aware of the insufficiency of the capital commitment and approve such insufficiency shall be liable for the damages arising from the non-payment of the said debt.
Corruption in Valuation: In the valuation of the in-kind capital or the business and the goods to be acquired, those who overestimate the price compared to the precedent, those who show the nature or condition of the business and the goods differently or those who commit fraud in any other way shall be liable for the damages arising therefrom.
Liability of Founders, Members of the Board of Directors, Managers and Liquidators: If the members of the board of managers violate their obligations arising from the law and the articles of association with their faults, they are liable for the damages they cause to the company, shareholders and creditors of the company. The members of the board of managers who delegate a duty or an authorisation arising from the law or the articles of association to another person on the basis of the law shall not be liable for the acts and decisions of such persons, except in the event that it is proved that they did not exercise reasonable care in the selection of the persons who delegated such duties and authorizations.
It should be mentioned that the transactions carried out by the managers on behalf of the limited liability company shall arise before the company. Article 632 of the TCC makes the company liable for the tortious act committed by the person authorized to manage and represent the company during the performance of his/her duties regarding the company. However, in any case, it should be stated that if the managers are at fault, they will be liable for their tortious acts. Furthermore, pursuant to Article 10 of the Tax Procedure Law and Article 35 of the Law on the Procedure for Collection of Public Receivables, the managers of limited liability companies, like the members of the board of directors of joint stock companies, are personally liable for the public debts that cannot be collected from the company due to their failure to fulfil their duties arising from the relevant legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
