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04 November 2019
Boards of directors are the administrative and representative bodies of joint stock companies. The general assembly of shareholders of a joint stock company appoints the directors that receive the most votes in a shareholders' meeting for a maximum of three years. Both real persons and legal entities can be elected as directors. If a legal entity is elected as a director, it must appoint a real person representative. Boards must have at least one director.
Boards have the authority to resolve all matters and take necessary actions relating to joint stock companies, except on matters reserved by law for the general assembly of shareholders or the articles of association (eg, capital increases, balance sheet approval and the release of directors from liability). They are also authorised to represent and bind joint stock companies in the widest manner pursuant to Article 365 of the Commercial Code. The power of boards can be increased by the articles of association (eg, the authority to increase capital, issue premiums and privileged shares or distribute advance dividends).
The primary duties and powers of boards as set out in the Commercial Code are:
Boards can transfer and delegate some of their duties and power; however, a number of duties and powers are non-transferable, as set out in Article 375 of Commercial Code, including:
In general, directors are believed to benefit from the business judgement rule under the Commercial Code, unlike under the previous regime. Thus, directors act as prudent managers. The level of diligence and responsibility expected from directors who act as prudent managers is based on their qualifications and level of ability and knowledge.
Directors are liable to companies as well as their shareholders and creditors for damages incurred in proportion to their failure to take action to prevent said damages.
In case of the delegation of duties and power among company directors and managers, directors cannot be held liable for damages incurred by a company due to a breach of such duties by other directors or managers, unless the former failed to fulfil their general duty of care and due diligence in the designation of power.
Directors must also take an active role and participate in matters concerning the management of joint stock companies. If a director disagrees with the rest of the board on a matter, they can record their view in the board's resolution. If liability arises from such resolution, the director will be free from liability.
Directors also have a duty of loyalty to joint stock companies, which requires them to prioritise the company's interests over their own. A breach of this duty will leave a director liable for damages.
Further, directors must treat all similar shareholders equally. This duty aims to prevent the discretionary and subjective treatment of shareholders (eg, inviting all shareholders to general assembly meetings and distributing dividends evenly). A breach of this duty may leave a director liable for damages and result in the annulment of any relevant board decisions.
Other directors' duties include the following:
For further information on this topic please contact Kaan Demir at Kayum & Demir by telephone (+90 212 291 1002 ) or email (email@example.com). The Kayum & Demir website can be accessed at www.kayumdemir.av.tr.
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