Main Responsibilities of the Board of Directors in Joint Stock Companies and the Managing Directors in Limited Liability Companies

Based on the statistical data annually published by the Union of Chambers and Commodity Exchanges of Turkey (TOBB), limited liability companies and joint stock companies are the top choices in terms of company types. These two types of companies occupy an indispensable position in the functioning of the national economy and in the global finance world, and therefore, responsibilities of the directors and managers are of great importance.

Duties, Powers, and Obligations of the Board of Directors and Managers

Pursuant to the Turkish Commercial Code, the board of directors of joint stock companies and the management which conducts the remaining company activities are authorized to make decisions on all kinds of business activities and transactions required for the realization of the business objective of the company, other than those left to the authority of the general assembly in accordance with the law and the articles of association. Some of the duties and powers of the Board of Directors are as follows:

1. Overseeing the executive management of the company and giving the relevant instructions,
2. Determination of the company management structure,
3. Establishment of the system required for financial planning, accounting and financial auditing necessary for the management of the company,
4. Unless there is an aggravating provision to the contrary in the articles of association, meeting with the majority of the total number of members and taking decisions with the majority of the members present at the meeting,
5. Obligation for all board members, company officials and committees to provide information at the meetings,
6. Keeping the records of the stock ledger, board of directors’ resolutions and general assembly meeting and negotiation registers; preparing and submitting to the general assembly the annual activity reports and corporate governance statements, organizing the general assembly meetings and execution of general assembly decisions.

According to the Turkish Commercial Code, the management and representation of the limited liability companies are prescribed by the articles of association.  One or more or all shareholders with a manager title or third parties may be appointed for the management and representation of the company. At least one shareholder must have the management and representation powers. Managing partners are authorized to perform and execute decisions on all matters related to management that are not left to the general assembly by law or the articles of association. Some of the duties and powers of the managers are as follows:

1. Overseeing the executive management of the company and giving the relevant instructions,
2. Determining the company management structure in accordance with the law and the articles of association,
3. Establishment of the system required for financial planning, accounting and financial auditing necessary for the management of the company,
4. Performing all duties with due diligence by managers and all persons in charge of the management and protecting the company’s interests in accordance with the principle of good faith
5. Avoiding all competing activities unless otherwise prescribed in the articles of association or unless all other partners have given their written permission,
6. Preparing the company financial statements, annual activity reports and if necessary, community financial statements and annual activity reports.

Legal and Criminal Responsibilities of the Board of Directors and Managers

In addition to their duties, powers, and obligations, the board of directors and managers, also have legal and criminal responsibilities arising from the representation of the company. In both types of companies, the responsibilities of the representative and executive organs are more or less the same, but there are also significant differences. According to Turkish Commercial Code: “Members of the board of directors and managers are liable for damages arising from their own fault to both the company and its shareholders as well as to the creditors of the company if they violate the obligations arising from the Law and the Articles of Association.”  This framework designated by the Law establishes the general responsibility of the representative and executive organs of the two companies. When comparing the two types of companies in terms of legal and criminal liability, two main differences are noticed:

A. In terms of individual responsibility:

• In joint stock companies it is possible to make an optional choice of giving the representative and managerial powers to one, a few or none of the shareholders. By assigning a third person to assume the representative and managerial powers, the shareholders will be exempted from managerial responsibility and freed from legal and criminal liability on an individual basis.
• In limited liability companies, it is also possible to give the representation and management powers to one or more or none of the shareholders. However, the obligation to assign at least one shareholder with the representative and managerial duties eliminates the possibility of avoiding legal and criminal liability, which comes with the managerial responsibilities for the shareholder-manager in question.

B. In terms of public debts:

• In joint stock companies, the board of directors is responsible for the public debts because of its representative and managerial powers and duties. Therefore, any legal or criminal sanctions arising from public debt will be directed at the board of directors. The shareholders’ responsibilities are limited by and to their capital investments.
• In limited liability companies, the shareholders – in proportion to their shares – are directly accountable for the public debts, which are not fully or partially collected from the company. Moreover, the shareholders are directly responsible with their personal assets.

Exceptions to the exemption from responsibility for the board of directors that have transferred its managerial powers

In practice, the board of directors transfers the management powers to one of its shareholders or one of its managers in order to establish a more professional management organization. In this way, all managerial powers (inalienable powers reserved) are transferred to the assigned person(s) who is/are to be responsible for the entire operation of the company. By conferring management power, the board of directors is, with few exceptions, exempted from the responsibilities arising from the acts and decisions of the person(s) assigned with the managerial powers. These exceptions are as follows:

• To investigate whether the person(s) to whom the management power is to be given has the necessary qualifications to carry out the company activities.
• To supervise the decisions and actions taken by the manager.
• To prevent the actions and activities that would harm the company and to immediately have the responsible person withdraw from the managerial duties.

If the board of directors does not fulfill the supervision duties listed above, the members of the board shall be jointly responsible for the damages that may arise from the faulty actions of the person(s) who is/are given the management power.