Emir Aksoy LL.M, LL.M. IP
Definition and Duties of the Board of Directors
According to Article 365 of the TCC, the Board is responsible for the management and representation of the company, therefore, as the managing body of any joint stock company, it is imperative that the company managers and board members understand the legal liabilities of board members. Please refer to our corporate section for more information regarding our services in structuring and managing company boards and board member liabilities.
One of the most important duties of any board member is to act in good faith while managing the company. There are two types of legal liabilities of Board Members regulated under Turkish Commercial Code (hereinafter will be referred as “TCC”); legal and criminal. Criminal Liability is regulated in Article 562 of the TCC.
In this article we have reviewed the legal liability of board members of a Joint Stock Company (“JSC”) according to TCC. The legal liability is regulated between the Articles 549-561 of TCC.
Legal Liabilities of Board Members
Liability of the Board members is regulated under Article 553 of TCC. Accordingly, board members may only be responsible of the damages caused to the company to it’s shareholders and to the creditors of the company (related third parties) in case they fail to fulfill their obligations arising from the law and articles of association at their own fault. Two conditions mentioned above should co-exist to hold the Board Members liable for their acts.
Pursuant to Article 553/2, if the management function of the company were partially or completely delegated, the Board would be released of their duty to the extent of the delegated function. Liability can only arise in case the assignee is appointed without due care.
According to the Article 553/3 of the TCC, Board members cannot be held liable from the breaches of the law or articles of association beyond their control. These breaches cannot be justified by duty of observation and care.
As per Article 555/1 of the TCC, the Company and every shareholder bear the right to claim damages from the board members due to the sustained loss of the Company. Shareholders can only request the damages to be paid to the Company.
Differentiated Liability is applied to the damages claimed against Board Members. It is defined in Article 557 of the TCC “In case more than one person is liable to compensate for the same damage, each of them, regarding the fault and the circumstance, to the extent the damage can be attributed personally, shall be jointly liable of the damage with the others. The claimant can sue more than one liable person for the entire damage and can ask the judge to determine the damage liability of each of the defendants in the same case.” Avoiding liability as a board member is possible by not taking on any signatory authority and by getting your vote recorded in the minutes to be on the safe side in case the resolution that you voted against results in damage to the company.
Statue of Limitations
Statue of Limitation is regulated in Article 560 of the TCC “The right to claim damages prescribes two years after the claimant finds out about the damage and who the responsible individuals are and at any discretion five years after the damaging action has occurred. If the act is penal and the Turkish Criminal Law stipulates a longer period for limitation of action, this limitation term is applied to the claim for damages”. Accordingly, legal liabilities of board members shall be limited with these statue limitations and shall also be subjected to the above mentioned rules.