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Delegation of Board of Directors' Authority

02 November, 2020

INTRODUCTION 

The board of directors which is regulated in articles 359 of the Turkish Commercial Code ("TCC") numbered 6102 is the executive body that runs the management and administration in internal affairs of the company and that provides representation in its foreign relations with third parties. The board of directors has the power to carry out the company’s works and transactions intended to directly or indirectly achieve its purpose, and its duties and authorities are generally stated in article 374 of the TCC. Additionally, some of the inalienable and non-transferable duties and authorities of the board of directors are listed under article 375.[1] The board of directors may assign its management and representation power (except for its non-transferable powers) to one or more board members and / or third parties, partially or entirely, in accordance with the articles 367 and 370/2 of the TCC. 

DIVISION AND ASSIGNMENT OF MANAGEMENT AUTHORITY 

The legal regulations in the TCC, unlike the abolished Turkish Commercial Code No. 6762 (“ACC),  handle the top management of the company and the company’s management of daily business separately[2]. In terms of transferability, “top management and instructions regarding this,” which constitute the operation strategy, are deemed amongst the non-transferable duties and authorities of the board of directors. The entire delegation of the management and administration power other than the top management is frequently preferred today. Management authority can be delegated to the executive member (executant) or members, as well as third persons (managers, expert executives) who are not on the board of directors (TCC 367). In the event of the transfer of management authority, the top management of the company will be carried out by giving the necessary instructions to the executives to whom the authority has been delegated and by ensuring control of the delegating executives. Here, “transfer” refers to delegation of the organic function to the executives. The board of directors shall continue to exist with inalienable and non-transferable duties and powers. Persons to whom the management and representation authorities have been delegated may have responsibilities pursuant to Article 553 of the TCC. 

TRANSFER OF REPRESENTATION AUTHORITY 

The representation authority of the board of directors is related to the foreign relations of the company with third parties.  According to provision 39/1 of the TCC, every merchant is obliged to carry out the transactions related to its commercial enterprise with its business title and sign the negotiable instruments and other documents related to its enterprise under this title. Persons authorised to represent, in accordance with Article 371 of the TCC, are able to perform all kinds of affairs and legal transactions that fall within the purpose and field of operation of the company on behalf of the company, and to use the company title for this purpose. The determination of authorised signatories is one of the inalienable duties and powers of the board of directors in accordance with 375/1-d of the TCC, and article 373 of the TCC obliges the board of directors to register and announce the persons authorised to represent and the form of representation. [3]  

Representation authority can be transferred to the members of the board of directors or to third parties (as manager).  Provision 370/2 of the TCC regarding the division and limitation of the representation authority, which stipulates the requirement that at least one member of the board of directors should have the authority of representation in the transfer of representation authority, gives less freedom to the transfer of this authority of the board of directors. Unlike the assignment of management authority, representation authority cannot be left to third person managers who are not members of the board of directors. 

AUTHORITY TRANSFER TRANSACTIONS 

The TCC separates the transfer of management and representation authority from one another. Instead of being transferred together in practice, different procedures are specified for the transfer of these authorities. Pursuant to article 367/1 of the TCC, the first condition of the management authority transfer is the presence of a provision in the articles of association that allows such transfer. The decision of the general assembly regarding the transfer would not be sufficient for allocation. In the presence of such a provision in the articles of association, management authority may be transferred with an explanation of  the content of the authority via an internal directive to be prepared by the board of directors. An internal directive is an internal regulation that shows the relationship between the duties of the board of directors and management.[4]  

The provision regulating the transfer of the board of directors’ representation authority is Article 370 of the TCC. As stated above, if the transfer is made to third parties, at least one member must continue to have the power of representation. Apart from this, there is no precondition in the law for the transfer of representation power. In the event of transfer, the board of directors must register and announce a notarised copy of the decision which lists the persons authorised to represent and their representation methods through the Chamber of CommerceIn the doctrine, there are those who argue that the conditions regarding the transfer of management authority would be sought for the transfer of representation authority.[5] In the event of such a requirement, it would be contradictory to arrange a transfer of authority made public by registration and announcement, with a text such as an internal directive that does not require registration and announcement. In addition, article 370/1 of TCC allows for different arrangements in the articles of association with regards to representation authority. Thereforeunder the TCC, there is no basis for the conditions regarding the transfer of management authority being sought for the transfer of representation authority. 

[1] KIRCA, İsmail/ŞEHİRALİ ÇELİK, Feyzan Hayal/MANAVGAT, Çağlar, Anonim Şirketler Hukuku V. 1, Temel Kavram ve İlkelerKuruluşYönetim Kurulu, Ankara 2013, p. 539-540 

[2] SOYKAN, İsmail Cem, Türk Ticaret Kanunu’nda ve Türk Ticaret Kanunu Tasarısı’nda Anonim Şirketin Yönetimi ve Temsili, Legal Hukuk DergisiY. 8, issue 91, July 2010, p. 2377 

[3] PULAŞLI, Hasan, Şirketler Hukuku Genel EsaslarGüncellenmiş 2nd edition, Ankara 2013, p. 397  

[4] YANLI, Veliye/OKUTAN NİLSSON, Gül, Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini, BATİDER, V. XXX, issue 4, 2014, p. 20-21. 

[5] PULAŞLI, Hasan, Şirketler Hukuku Şerhi, 2nd edition, Ankara 2014, §30 N. 528 

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