Delegation and Division of Representation and Management in Joint Stock Companies

As per the Turkish Commercial Code dated 6102 and numbered 14.02.2011, Board of Directors (“BoD”) is the authorized body of a joint stock company (“JSC”) for the representation and management of the company. As a result, any transaction conducted with third parties that is binding the company are conducted by the member(s) of the BoD as a general rule. However such authorities may be divided and delegated to non-board members as well.

Representation

Companies have daily routines that include signing new commercial contracts, hiring new people, sending legal notifications, entering into general credit agreements with banks and communicating with legal authorities. Most of the abovementioned operations require a signature. Since the company as a legal entity does not have a signature, the authorized representatives of the company (most of the time, members of board of directors) will sign the relevant documents under the registered title of the company. Pursuant to the TCC, unless otherwise stipulated under the articles of association of the JSC or in the event that the JSC only has one board member, two signatures of the authorized representatives is required for the transactions conducted on behalf of the company. However, other arrangements can be made through articles of association and board of directors’ resolutions.

Delegation and Division of Representation  

Pursuant to the TCC stipulation an internal directive is not compulsory for division and delegation of the representation authorities of the BoD. For smaller companies, a simple BoD resolution may be sufficient for the division and delegation of the representation. Nevertheless, such division like the internal directive must be registered to the trade registry and declared through Trade Registry Gazette.

• At least one BoD member should have the authority to represent the company. As a result of such rule, unlike the delegation of the management, a full delegation of the representation to non-board members is not possible.
• Internal directive may be compulsory depending on the delegation and the position.
• Internal directives generally include groups such as Group A and Group B. For example, an internal directive may state that Group A signatories can enter into any transaction with their sole signature, but two or more Group B signatories can enter into any transaction up to a volume of TRY 10.000,00).
• Internal directive shall only include the limitations of the representation (for example internal directive may state that the financial manager of the company can only enter into transactions related to finance). Person(s) appointed to such positions requires a separate BoD resolution.  Such BoD resolution also required to be registered to trade registry as well.

Management

The management of the company includes daily tasks, conducting correspondences, appointment of company personnel, legal affairs and human resources. Management duties may be divided into committees and commissions as well as to between the members of the board. Without any division or delegation of the management duties all board members are liable and responsible for the management duties of the JSC.  Management duties of the BoA may also be delegated to non-board members that are employed in company’s management.  

Delegation and Division of the Management

Management duties of the BoA may be delegated and divided between the BoA members and non-board members.  Creation of departments such as human resources, legal affairs, financial affairs, IT can be given as examples for delegation and division of the management. Pursuant to the TCC, for delegation and distribution of management duties an internal directive is compulsory. Internal directive shall only include the job descriptions and titles of the respected department /commission/committee. Managers appointed to such positions requires a separate BoD resolution. Such BoD resolution also required to be registered to trade registry as well.

• To stipulate an internal directive, existence of a provision permitting such stipulation in articles of association of the JSC is required.
• BoDs in Turkey stipulate the internal directive regarding the management through a BoD resolution or a protocol.
• Such protocol or resolution should be notarized and registered to the trade registry and declared through Trade Registry Gazette.
• BoD may opt to inform the creditors and shareholders regarding such internal directive.  
• Pursuant to the TCC, board members are not liable for the actions of the diligently delegated person(s). However, to benefit from such rule stipulation of an internal directive is required; a de-facto division would be insufficient.
• BoD shall not delegate the management duties that requires the resolution of the board. Call for a general assembly meeting can be given as an example.

Functions of Signature Circular and Third Persons

Signature circular are stipulated by the notary publics subsequent to the appointment of company representatives and person(s) who have management duties in the company. Signature circulars are most often requested by the contracting parties, banks, regulatory authorities. The request is related with the unauthorized representation of a JSC. The JSC cannot be bound by the transactions if the person(s) conducting the transaction on behalf of the company is unauthorized because BoD members and other representatives of JSCs are declared through trade registry and Trade Registry Gazette, unauthorized representative’s transaction conducted on behalf of the company would not bind the JSC in question. However, Transactions conducted by the JSCs representative(s) that are not in the scope of business of the JSC bind the company if the other party(s) is bona fide and is not aware that transaction is not in the scope of business of the JSC. 

Companies should diligently delegate such authorities to avoid undesirable consequences. It should also be noted cancellation of the delegation may also require additional BoD resolutions and registrations to the trade registry which can be costly. The review of the signature circular prior to signing a contract has a profound importance as well since both parties would have the intention to bind the companies (as a contractual party) in question to the contract.

Author: Batuhan Ecin