The board of directors (board) is appointed by articles of association during the incorporation of a “joint stock company” (Turkish Commercial Code Art. 339/2 g and 354/1 g). Later on, board members can be appointed by the general assembly (GA) or temporarily by the board itself in exceptional circumstances. The GA can also dismiss members before their term is over. The details of such a dismissal process for joint stock companies are discussed in this article.
“1. Number and Qualifications of the Members
ARTICLE 359 – (1) The joint stock company shall have a board of directors, which consists of one or more persons assigned by articles of association or elected by the GA.”
Dismissal of Directors
The general assembly has exclusive authority to dismiss board members, except Turkish Commercial Code (“TCC”) Art. 334/2. The GA can dismiss a board member at any time as long as there is a just cause (TCC Art. 364/1). The legal relationship can be terminated when trust is partly or wholly diminished at any moment deemed necessary (TCC Art. 512/1).
The chairman of the board or any other active member can deliver the dismissal decision to the dismissed member of the board. The dismissal becomes effective upon delivery to the board member.
Board members can be dismissed at any time according to TCC provisions under the heading “Dismissal”:
“ARTICLE 364 – (1) Even if board members have been assigned through articles of association, in case of just cause and despite the existence or absence of a relevant item on the agenda, they can be dismissed from the board by resolution of the GA. The legal entity that is a board member can, at any time, replace the person registered as the entity’s representative.
(2) The provision in Article 334 and the right to indemnity of the member removed from appointment remain in force.”
The dismissal of board members is subject to the condition of having an explicit item on the GA meeting agenda, according to the provisions of TCC Art. 364/I, c. 1. However, it is also expressly stated that dismissal can occur without fulfilling this condition if there is a “just cause”.
TCC Art. 413/III states that “dismissal and replacement of board members are considered related to the agenda item on the discussion of year-end financial tables.” This rule allows directors to be dismissed and the election of new members at any ordinary GA meeting. As a result, the GA is provided with the capacity to change the board if the GA is unsatisfied with the results expressed in the year-end financial tables and the year-end financial statements. Secondly, the provision prevents the danger of keeping the board on duty because of concerns related to the time period for which they are elected, even if their performance is unsatisfactory.
Art. 364/I provides that board members can be dismissed by a GA decision at any time if there is a just cause. On the other hand, a GA without a call (universal meeting) can be convened under TCC Art. 416. Therefore, board members can be dismissed without adding a related item to the meeting agenda.
The GA’s power to dismiss board members cannot be delegated (TCC Art. 408/II,b).
“II – Meeting and quorum
ARTICLE 418 – (1) Excluding stricter quorums stated in this Law or in articles of association, General Assemblies are held in the presence of shareholders holding at least one-quarter of the share capital, or their representatives. This quorum must be kept during the meeting. If this quorum cannot be met in the first meeting, no quorum is required for the second meeting.
(2) A majority of votes present is required to adopt a resolution.”
Dismissal Declaration to the Trade Registry and the Effect of Registration
TCC Art. 31/1 states that each change in the matters already registered shall also be registered. Additionally, under TCC Art. 373/1, the board of directors shall submit a notarised copy of the decision showing authorised board representatives and their representation type to the trade registry for registration and announcement. Accordingly, it can be concluded that the board of directors and the chairman must declare the dismissal of board members to the trade registry.
Board of Directors Mass Resignation – the Absence of a Corporate Body
The absence of a company body is a reason for termination. Collective resignation results in the company having a missing corporate body. According to Art. 530 of TCC under the heading “Absence of Corporate Body”, the company may face termination in the case of a court decision upon the request of shareholders, company creditors, or the Ministry of Trade. In addition, the court can also decide to appoint an administrator according to TCC Art. 412/1.
“a) Absence of corporate body
ARTICLE 530 – (1) If one of the company bodies that is mandatory by law does not exist or the general assembly fails to convene for a lengthy period, upon the request of shareholders, company creditors or the Ministry of Trade, the commercial court of first instance, where the company headquarters is located, sets a period for the company to take measures to comply with the law whilst the court communicates with the board of directors. The court decides to terminate the company if the condition is not improved within this period.
(2) The court can take the necessary precautions upon request of one of the parties when the lawsuit is filed.”
“b) Permission of the court
ARTICLE 412 – (1) The commercial court of first instance where the company is located can decide to call the general assembly to a meeting upon application of the shareholders whose call or requests to add an item to the meeting agenda is rejected by the board of directors or a positive response is not communicated within seven business days. The court appoints an administrator to arrange the agenda and make a meeting call according to legal provisions if the court finds it necessary to convene a meeting. The decision shows the administrator’s duties and powers to prepare the required documentation for the meeting. The court decides by examining the file unless there is another necessity. The decision is final. ”
The general assembly of a Turkish joint stock company is free to change the board of directors as long as there is a “just cause”. Since the relationship with the board members relies on mutual trust, the just cause can be present when this trust is harmed. The discussion of financial tables during the general assembly meeting also provides an alternative way to dismiss the board members. On the other hand, companies should be cautious in the case of the resignation of board members since this can result in the court taking action for the company’s termination.