Articles 549 to 552 of the Turkish Commercial Code specify four situations related to pre-incorporation liability. The first legal liability category is the violation of the law regarding documents and declarations. Accordingly, those who issue documents or make declarations, and those who participate in them, if negligent, are liable for damages arising from the inaccuracy, fraud, forgery, falsehood, concealment of truth, and other violations of law in documents, prospectuses, commitments, statements, and warranties related to the company’s establishment, capital increases and decreases, mergers, divisions, conversions, and securities issuances.
The second category involves misrepresentations regarding capital and knowledge of insufficient payment. In this case, those who represent that the capital has been committed or paid, even though it has not been fully committed or paid in accordance with the law or the articles of association, and the company’s officers, provided they are at fault, are deemed to have assumed these shares and are jointly and severally liable for the share value and the loss, along with interest. Furthermore, those who know and approve the insufficiency of those making the capital commitments are liable for losses arising from the non-payment of the debt in question.
The third circumstance that gives rise to legal liability is fraudulent conduct in the valuation of the company or the businesses to be acquired. This fraudulent conduct can manifest in two ways. The first is when the company misleads the public. For example, if the value of the company or the business to be acquired is overstated, those conducting transactions with the company will be mistaken regarding the company’s capital. The second is when the company misleads the public. In this case, the owner of the overvalued company or the business will unfairly acquire a larger share in the company.
The fourth circumstance that gives rise to liability is unauthorized collection of money from the public. According to the law, without prejudice to the Capital Markets Law, raising money through public appeals for the purpose of establishing a company or increasing capital is prohibited.
The law also allows for the liability of founders, board members, and liquidators before or after the establishment of the company. According to Article 553 of the Law, these individuals are liable for damages they inflict on the company, its shareholders, or its receivables. However, for liability to arise, the act giving rise to the liability must be within the individual’s control. If the event giving rise to liability is beyond that individual’s control, the individual cannot be held liable, even if the individual’s duty of supervision and diligence is cited as justification. This regulation places a limitation on the duty of supervision and diligence of board members.
If the board of directors delegates its duties and authorities, exercising its authority derived from law or the articles of association, the responsibility falls on the individuals who transferred them. In this case, the liability of the former board of directors will be limited solely to “taking reasonable care in the selection process.”
In a lawsuit filed for compensation for damages suffered by the company, the plaintiff must be a company or any shareholder, as per Article 555/1 of the Law. If the lawsuit is filed by a shareholder, the shareholder must demand payment of the compensation awarded to the company, as per the same article. Furthermore, if the company is in bankruptcy, the right to file a lawsuit is also granted to creditors and the bankruptcy administration. If the lawsuit is filed during the bankruptcy phase, if bankruptcy creditors file the lawsuit, the compensation awarded will be allocated first to the defendants who filed the lawsuit. However, if shareholders are also plaintiffs in the lawsuit, the compensation awarded will be paid to the shareholders after the bankruptcy creditor. Any remaining amount will be given to the bankruptcy estate. If the damage is caused by the actions of more than one person, the plaintiff may file a lawsuit based on the amount of compensation each perpetrator is required to pay based on their fault and the circumstances of the case, as per Article 557/1. Alternatively, the plaintiff may file a lawsuit for the entire damages against all defendants, as per Article 557/2. In this case, the determination of each defendant’s compensation obligation is left to the judge’s judgment. The judge will determine the proportion of liability among those responsible in accordance with Article 557/3 and render the judgment. It is important to note that the liability in this case is fault liability.
Court of Cassation, 21st Civil Chamber, Merits No: 2013/13402; Decision No: 2014/16034;
“In the present case, the plaintiff was elected a member of the board of directors on June 30, 2003. It should be investigated whether the plaintiff was a member with representation and signature authority for debts dating back to the period before July 1, 2008, or a person with authority to represent and bind, such as a general manager, finance manager, or accounting manager, who has financial responsibility in the company’s management. For debts dating back to the period after July 1, 2008, the plaintiff’s status as a member of the board of directors of the joint-stock company necessitates liability for debts. Senior executives can only be exempted from liability if justified. The burden of proof in this matter rests with the plaintiff.
The court’s decision in writing, based on incomplete examination and without considering these material and legal facts, is contrary to procedure and law and grounds for reversal.”[2]
Court of Cassation, 10th Civil Chamber, Merits No: 2013/18714, Decision No: 2014/14834;
“Pursuant to Article 317 of the Turkish Commercial Code, the administration and management of a joint-stock company are carried out by the authorized administrative board, which also serves as the decision-making body. When both provisions are considered together, in order to be considered a senior executive responsible for the payment of premiums for a joint-stock company, this individual must hold a title such as the president or vice president on the board of directors and be a member with signature authority, or be an official with senior responsibility in the company’s management, such as the general manager, finance, or accounting manager, authorized for financial matters. Individuals other than those listed above, who do not have a direct say or authority in the company’s administrative or financial affairs and are not part of the decision-making body, cannot be considered jointly liable with the employer. The fact that a company employee has a signature on certain matters does not eliminate this obligation.”[3]
Court of Cassation, 11th Civil Chamber, Merits No: 2021/5001, Decision No: 2022/8545;
“The main lawsuit and the consolidated lawsuits concern the liability of the board members and accountants of joint-stock companies.
1- While board members cannot be held personally liable for transactions they perform on behalf of the company, in the cases specified in Article 336 of the TCC, all directors are jointly and severally liable for damages unless they can prove their faultlessness towards the partnership and its receivables. In other words, if a damage occurs during the performance of board members’ duties, it must be assumed that this damage resulted from the members’ negligent actions. In other words, the Turkish Commercial Code reverses the burden of proof for board members, stipulating liability based on fault and accepting the presumption of fault against board members. Indeed, Article 338 of the TCC stipulates that board members are liable for damages if they cannot prove they were free of fault and liability. Furthermore, Article 337 of the TCC stipulates that newly elected or appointed board members are obligated to report their predecessors’ alleged corrupt practices to auditors, or that otherwise their predecessors will be held liable. It is stated that they will participate. Article 359 of the Turkish Commercial Code (TTK) stipulates that members of the audit board are also liable for damages unless they prove their fault. It is not possible for a joint stock company to be established for a non-economic purpose. The economic purpose of a joint stock company necessitates the pursuit of an economic benefit for the company’s partners.
… Furthermore, excessive expenses such as donations and food aid made to third parties, which are recorded as general administrative expenses, constitute losses for the company because they are incompatible with the company’s economic purpose. Following these explanations, when the specific case is addressed, in accordance with the principles explained above, whether board members are liable and, if so, the amount should be determined and the decision should be made accordingly. However, dismissing the case on the grounds that inappropriate lawsuits were filed prematurely was incorrect and necessitated reversal.”[4]
[1] In this study, the following work was used: Dedeağaç, E., & Sapan, O. (2013). Anonim şirketlerde yönetim kurulu ve sorumluluğu. Ankara Barosu Dergisi.
[2] Court of Cassation, 21st Civil Chamber, Merits No: 2013/13402; Decision No: 2014/16034.
[3] Court of Cassation, 10th Civil Chamber, Merits No: 2013/18714, Decision No: 2014/14834.
[4] Court of Cassation, 11th Civil Chamber, Merits No: 2021/5001, Decision No: 2022/8545.