Board of Directors in Joint Stock Companies under Turkish Law
A board of directors meeting in joint stock companies may be held either physically or electronically. The possibility of holding a board of directors meeting electronically is expressly regulated under Article 1527 of the Turkish Commercial Code (“TCC”). Accordingly, joint stock companies may validly convene a board of directors meeting through electronic systems, provided that the statutory requirements are met.
This article only covers rules on board of directors in joint stock companies. You can access detailed information different aspects of joint stock companies in Turkey our article on share transfer in Turkish joint stock companies. You can also access our guide on company formation in Turkey.
Board of Directors Meeting in Joint Stock Companies: General Legal Framework
Under Turkish law, the board of directors in joint stock companies constitutes the primary decision-making mechanism of the board. The validity of board resolutions depends on compliance with the procedural rules governing the convening of the meeting, quorum requirements, and voting procedures as set out in the TCC.
Authority to Convene a Board of Directors Meeting in Joint Stock Companies
As a general rule, the authority to convene a board of directors meeting in joint stock companies belongs to the chair of the board. Pursuant to Article 392/7 of the TCC, any member of the board of directors may request the chair to convene a board of directors meeting.
Request by Board Members to Convene the Meeting
Following the amendments introduced by Law No. 7511, published in the Official Gazette dated 29 May 2024 and numbered 32560, significant changes have been made regarding the procedure for convening a board of directors meeting in joint stock companies. These amendments entered into force on the same date.
Prior to the amendments, the prevailing opinion in legal doctrine was that resolutions adopted at a board of directors meeting not convened by the chair were deemed legally non-existent.
Amendments Introduced by Law No. 7511 Regarding Board of Directors Meetings
Before the amendment, Article 392/7 of the TCC provided as follows:
“Each member of the board of directors may request the chair in writing to convene the board of directors.”
The following provisions have now been added:
If the request is deemed appropriate, the board of directors meeting shall be convened by the chair.
Upon the written request of the majority of the board members, the chair must convene the board of directors meeting so that it is held within thirty days from the date the request is received.
If the board of directors meeting is not convened within this period or if the chair or deputy chair cannot be reached, the meeting may be convened directly by the requesting members.
For such meetings, the quorum rules set forth in Article 390/1 of the TCC shall apply.
A different procedure for convening a board of directors meeting may be stipulated in the articles of association.
These amendments clarify the legal uncertainty regarding who is authorized to convene a board of directors meeting in joint stock companies where the chair or deputy chair fails to act.
Failure or Inability to Convene a Board of Directors Meeting
Pursuant to Article 363/2 of the TCC, circumstances may arise preventing a board member, including the chair or deputy chair, from performing their duties. In such cases, difficulties may occur regarding the convening of the board of directors meeting.
In principle, the written circular resolution procedure regulated under Article 390/4 of the TCC may be applied. However, this method is only available if none of the board members has requested the holding of a board of directors meeting. Where such a request exists, the authority to convene the meeting must be assessed in accordance with the amended provisions of Article 392.
Invalidity of Board of Directors Meeting Resolutions in Joint Stock Companies
The legal fate of resolutions adopted at a board of directors meeting in joint stock companies where not all board members have been duly invited must be carefully examined. In such cases, sanctions such as non-existence, nullity, or annulment may be applicable.
If the required quorum is achieved despite the absence of one or more board members, it may be argued that the constitutive elements of the resolution are present. Therefore, the failure to invite certain board members does not necessarily result in non-existence. However, depriving board members of the opportunity to participate in deliberations affects the collective will of the board.
Accordingly, such resolutions may be deemed null and void under Article 391/1(b) of the TCC, as they contradict the fundamental structure of joint stock companies.
The principle of good faith may, under certain conditions, be asserted against claims of nullity. For example, a board member who failed to duly convene a board of directors meeting cannot later rely on the nullity of the resolution without violating the principle of good faith.
Adoption of Resolutions at a Board of Directors Meeting in Joint Stock Companies
For resolutions adopted at a board of directors meeting in joint stock companies to be valid, they must be in written form and signed in accordance with Article 390/5 of the TCC.
Under Article 390/4 of the TCC, resolutions may also be adopted by way of a written circular resolution, provided that no board member has requested the holding of a meeting. Whether adopted at a physical or electronic board of directors meeting, or by circular resolution, decisions must be approved by the majority of the total number of board members.
The Court of Cassation has ruled that a resolution adopted at a board of directors meeting held without the participation of the chair is deemed legally non-existent (11th Civil Chamber, decision dated 16 April 2019, E. 2017/4046, K. 2019/3005).
Liability of Board Members Arising from Board of Directors Meetings
The chair of the board is primarily responsible for convening the board of directors meeting in joint stock companies. Failure to exercise this authority may give rise to liability, particularly where the inability to adopt resolutions results in damage to the company.
Article 553 of the TCC regulates the liability of board members, founders, managers, and liquidators. Board members are liable for damages caused by breaches of their statutory or contractual obligations committed through fault.
V – Liability of founders, board members, managers, and liquidators
Article 553 –
(1) Founders, board members, managers, and liquidators are liable for damages they cause to the company, shareholders, and company creditors if they breach their obligations arising from the law or the articles of association through their fault.
(2) Organs or persons who, based on the law, delegate a duty or authority arising from the law or the articles of association to another person shall not be liable for the acts and decisions of such persons, unless it is proven that they failed to exercise reasonable care in selecting them.
(3) No one may be held liable for violations of the law or the articles of association, or for irregularities, that are beyond their control; this exemption from liability cannot be invalidated by invoking the duty of supervision and care.
Prohibition on Participation in Deliberations at Board of Directors Meetings
In cases of conflict of interest, board members are prohibited from participating in deliberations during a board of directors meeting in joint stock companies. Article 393 of the TCC provides that board members who act in breach of this prohibition, as well as those who knowingly allow such participation, are obliged to compensate the company for any resulting damage.
Article 393 –
(2) A board member who acts in breach of these provisions, as well as those members who do not object to the participation of the relevant member in the meeting despite the existence and knowledge of an objective conflict of interest, and those board members who resolve to allow such participation, are obliged to compensate the company for the damage suffered as a result.
Click here to read our article titled “Board of Directors Changes in Türkiye”.
References
Adıgüzel, Burak / Özlem İlbasmış Hızlısoy, “The Prohibition on Participation in Deliberations of Board Members in Joint Stock Companies,” Ankara Hacı Bayram Veli University Faculty of Law Journal, Vol. 27, No. 4, 2023, pp. 39–64. Click here to access.
Hamamcıoğlu, Esra, “The Consequences of Failure to Invite One or More Board Members to a Meeting or Failure to Comply with the Agreed Procedure in Light of Court of Cassation Decisions,” Bahçeşehir University Faculty of Law Journal, No. 197–198, Vol. 16, 2021, pp. 119–158. Click here to access.
İlbasmış Hızlısoy, Özlem, “Persons Authorized to Convene the Board of Directors in Joint Stock Companies and the Legal Fate of Resolutions Adopted at Meetings Convened by Unauthorized Persons,” Journal of Commercial and Intellectual Property Law, Vol. 8, No. 1, 2022, pp. 115–142. Click here to access.