Author: Helin Akbulut
Introduction
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation (both at the level of the law and in the secondary legislation). It is also the subject of many judicial decisions both under the scope of the good faith principle and the capital maintenance principle in the context of the general assembly resolutions of private joint stock companies.
In the decision of approval of the 11th Civil Chamber of the Court of Cassation dated November 2021, the Court found that the financial rights granted to the members of the board of directors, who were also the majority shareholders, were contrary to the rule of good faith, and the relevant general assembly resolution was annulled. This Newsletter will focus on whether or when the financial rights of the members of the board of directors constitute a disguised profit transfer in closed joint stock companies by focusing on Court of Cassation rulings.
It should be noted that this Newsletter article will explore the concept of disguised profit transfer from the perspective of company law, and no examination or evaluation will be made regarding tax law.
Board Members’ Financial Rights
Article 394 of the Turkish Commercial Code numbered 6102 (“TCC”), regarding the financial rights of the members of the board of directors, states that “Members of the board of directors may be paid attendance fees, wages, bonuses, premiums[1] and a share from the annual profit, provided that the amount is determined by the articles of association or the decision of the general assembly”. More than one type of financial right might be determined for the members of the board.
