Contact: Att. Tuna F. Colgar; Erdem & Erdem (Turkey)
A number of amendments have been made to the Turkish Commercial Code (“TCC”) by Articles 131, 132, 133 and 134 of the Omnibus Law No. 6552 adopted by the Turkish Grand National Assembly on September 10th, 2014. The most outstanding of these amendments are the addition made to Art. 371 relating to the representative authority of companies and the amendment made to Art. 629 concerning limited liability companies with a reference to the paragraph added to Art. 371.
The paragraph added to TCC Art. 371 by Omnibus Law No. 6552 reads as follows;
“(7) The board of directors, with the exception of certain representatives referred to above, may appoint non-representative members of the board of directors or persons bound to the company by a labor contract as commercial representatives with limited representative authority or other commercial assistants. Powers and duties of persons appointed in this manner shall be clearly stated in the internal directive issued in accordance with Art. 367. In such a case, the internal directive shall be registered and announced. Commercial assistants or other commercial representatives shall not be appointed with the internal directive. Commercial assistants or other commercial representatives authorized by this paragraph shall be registered in the Trade Registry and announced. The board of directors shall be liable jointly and severally for any damages caused by these persons towards the company or third persons.”
New regulations are introduced by the 7th paragraph added to Art. 371 concerning the function and scope of the internal directive regulated under Art. 367 TCC. According to the added paragraph, the board of directors may appoint non-representative members of the board of directors, or persons bound to the company by a labor contract as commercial representatives with limited authority, or other commercial assistants. This act of the board of directors and the powers and duties of the appointed persons shall be explicitly reflected in the internal directive issued in accordance with Art. 367. Following this addition made to TCC Art. 371, a new opportunity has arisen for the companies that would like to impose different kinds of limitations on the representative authorities of the company, but which are not able to do so by a signatory circular. Companies that wish to introduce a limitation or categorization for its representative authorities are able to do so through a registered and announced internal directive. The legislator aims to make the internal directive a means of proof by making its registration and announcement obligatory.
At this point, the reliability on trade registry records (the constructive function of the trade registry) must be analyzed. The addition of the 7th paragraph to Art. 371, enabling the thematic and pecuniary representative limitations; and determination of the appointed representatives in a registered and announced internal directive are important with regards to the fact that the company is bound by the transactions concluded with third parties or its right to recourse to its representative that carried out the transaction. In our opinion, with this new regulation, where transactions concluded with third parties on behalf of the company by a non-representative member of the board of directors or persons bound to the company by a labor contract as commercial representatives with limited representative authority or other commercial assistants, that are acting upon the internal directive issued in accordance with the board of directors resolution; the parties to the transaction will be bound by the limitations introduced with the internal directive as a result of the constructive function of the Trade Registry. However, in any case, in order to prevent any conflict, it is advised that the board of directors resolution, concerning the distribution and limitations of authority, and the Trade Registry Gazette issue in which the internal directive is announced must be shared with the counter party during the transactions in accordance with the constructive function of the Trade Registry, which causes the “ought to know” principle to be utilized.
The reason underlying the need to differentiate between “company representatives” and “the non-representative members of the board of directors or persons bound to the company by a labor contract” is evident in the preamble of the TCC. As explained in the preamble of Art. 367 TCC, the TCC differentiates between the right to execute and representative authority. In this case, the board of directors is split into two groups as “executive” and “non-executive” members.
The 7th paragraph added to Art. 371 enables thematic and pecuniary limitations for commercial representatives or other commercial assistants who will be appointed by the board of directors, and selected within the non-representative members of the board of directors or persons bound to the company by a labor contract, other than the company representatives who are vested with execution and representation authorities. However, in accordance with the 3rd paragraph of Art. 371, such limitations shall not be applicable for representatives with execution and representation authorities.
“The board of directors shall be jointly liable for all types of damages of the company and third parties, created by these persons.” is the last sentence of the aforementioned 7th paragraph. This sentence should be evaluated in unison with the second paragraph of TCC Art. 553, which reads as follows; “The bodies or persons transferring a duty or power emanating from the Code or from the articles of association to others on a legal basis are not liable for their actions and decisions, providing that they prove that they displayed enough care while choosing those persons assigned to these functions and powers.”
In order for the aforementioned regulation on joint stock companies to be applied to limited liability companies, a third paragraph was added to TCC Art. 629 by the Omnibus Law numbered 6552:
“(3) Regarding the appointment of the persons bound to the company by a labor contract as commercial agents or other commercial assistants by the company managers, Art. 367 and Art. 371/7 shall be applied to the limited liability companies by analogy.”
Thereby, Art. 367 and Art. 371/7 shall be applied to limited liability companies by analogy in the matter of the appointment of persons bound to the company by a labor contract as commercial agents with limited authorities or other commercial assistants, by the managers of limited liability companies.
In addition to the abovementioned regulations, Omnibus Law No. 6552 grants an extension of time and further opportunities, in order for companies to adopt the rules regulated under the TCC by the effective date of 01.07.2012 via transitional provisions.
In this context, the wording: “As from the entry into force of this Code” in the TCC Temporary Art. 7, and “within two years starting from the effective date of the Code” in the sub clause (b) of the same article are amended as “until the date of 01/07/2015”. Thus, in such a case where a circumstance laid out in temporary Art. 7 occurs, such as company capital not being decreased to the point of the minimum values, despite the fact that the liquidation process has been initiated, the inability of the removal of the company from the Trade Registry due to the lack of general assembly meeting or, general assembly meetings not having been conducted over the last five years, the effective period of the provision enabling joint stock and limited liability companies and cooperatives to liquidate without complying with the liquidation provisions stated in the Code has been extended from 01.07.2014 until 01.07.2015.
Additionally, via the regulation of TCC Temporary Art.10, an extension of time is granted to the companies in order for them to achieve the minimum amount of share capital stated in the Code.
“Temporary Article 10- The dissolution process shall not be executed where the companies obliged to increase their capital in accordance with TCC provisions have not yet increased their share capital by 14.02.2014, if such companies meet the capital increase conditions within three months following the publication date of this provision. The registration of companies with the trade registry, which were formerly removed from the trade registry due to the fact that they have not performed a capital increase shall take place ex officio, if the companies apply for a capital increase within the abovementioned period.”
In conclusion, it can be seen that the parliamentary committee’s statements regarding the TCC eventually becoming a code, which satisfies the needs of commercial life via dynamic amendments compatible with the needs of commercial practice have been actualized. By virtue of these amendments, the need for distribution and limitation of the representative authority within company officials is satisfied via the addition of a new paragraph to Art. 371. Additionally, temporary articles grant extended opportunities for companies to adapt themselves to the TCC.
