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Appointment of Member to the Board of Directors Pursuant to Article 363 of the TCC

January 2013 Fatih Işık
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Introduction

Pursuant to Article 408 of the Turkish Commercial Code No. 6102 (“TCC”), which entered into force on July 1, 2012, the members of a joint stock company’s board of directors shall be appointed by the general assembly. This authority is one of the non-transferrable authorities and duties of the general assembly. However, Article 363 of the TCC is an exception to this provision and enables the board of directors to appoint a member to the board. As per this article, in the event any vacancy arises on the board of directors for any reason, the board of directors may appoint, temporarily, a member who meets the legal requirements and submit this member to the next general assembly for approval. The member appointed performs his duty until the general assembly to which he is submitted for approval convenes and completes his predecessor’s tenure if he is approved.

However, Article 408 of the TCC should be considered while Article 363 of the TCC is implemented; changing the board of directors by appointing more than one member to the board, in the event more than one vacancy arises, may be interpreted as the transfer of the general assembly’s authority to appoint members to the board.

The combined implementation of these two provisions was examined in the correspondence of the General Directorate of Domestic Trade of the Ministry of Customs and Trade dated 22.10.2012 and numbered 6799 (“Opinion of the Ministry”)[i]. The appointment of a member to the board of directors pursuant to the Article 363 of the TCC shall be examined and the Opinion of the Ministry shall be evaluated.

The Opinion of the Ministry

In the Opinion of the Ministry, articles 363 and 408 of the TCC are evaluated as follows:

…it is understood that consecutive resolutions for the appointment of members replacing the resigning members of the board of directors are adopted at different times on the same day that members have resigned. It is also understood that newly appointed members participate in the resolution regarding the appointment of other members prior to the registration of the resolution by which they were appointed.

In this respect, it is not appropriate to replace all members of the board of directors pursuant to article 363 of the TCC since the appointment of members to the board of directors is one of the non-transferrable authorities of general assembly; new members may be appointed pursuant to this article only in the event the quorum is present, despite the vacancies, and the new members may participate in the new resolutions following their registration.”

The Opinion of the Ministry refers to a case in which the board of directors of a joint-stock company adopted sequential resolutions on the same day at different times. The new member appointed pursuant to the Article 363 in one of these resolutions participated in the appointment of another member without being approved by the general assembly and without being registered.

The Opinion of the Ministry has two outcomes: (i) changing all members of the board of directors as per Article 363 of the TCC is not possible by virtue of Article 408 of the TCC; (ii) the members appointed pursuant to Article 363 of the TCC may participate only in the new resolutions following their registration. However, it is not clear in the Opinion of the Ministry whether the phrase “new resolutions” are relevant only to the resolutions with respect to Article 363 of the TCC or to all resolutions to be adopted by the board of directors.

It may be argued that Article 408 of the TCC should not be rendered ineffective by virtue of Article 363 of the TCC. However, the Opinion of the Ministry, which requires that new members of the board of directors need to be registered and announced in order to become a member and to be entitled to exercise the rights arising therefrom, namely participating in the implementation of Article 363 of the TCC, should be further evaluated.

When a Person Becomes a Member of Board of Directors and What is the Legal Nature of Registration?

Members of the board of directors appointed by the general assembly pursuant to Article 408 of the TCC shall become a member of the board of directors upon acceptance of the membership. Therefore, it is not necessary that a member of the board of directors be registered to the trade registry for their appointment as a member of board to be valid. However, as per Article 354/1(g) of the TCC, members of the board of directors shall be registered to the trade registry and announced in the trade registry gazette. Nevertheless, this registration is not constitutive (i.e. the registration does not affect the validity of the board member’s appointment), but rather declaratory[ii] (the registration and announcement declare that said person became a member of the board of directors). The function of registration and announcement is to inform third persons[iii].

Even though the registration of new members of the board of directors does not have a constitutive nature, the changes on the issues which are already registered, such as the persons authorized to represent and bind the company, must be registered and announced to third parties in order to avoid problems arising from representation of the company. Here again, registration serves to inform third parties. Therefore, a company which did not register and announce the new members of the board of directors may be bound by the transactions made by the former member with a third person, unless it is proved that the third person knew of the changes.

However, the Opinion of the Ministry indicates that members appointed to the board of directors pursuant to Article 363 must be registered in order to participate in new member appointments and grants a constitutive nature to the registration. This attitude is not in compliance with the law and the doctrinal opinions referred above which defends that the registration is not constitutive.

Another issue is whether a member of the board of directors, appointed pursuant to Article 363 of the TCC and approved by the general assembly, but not yet registered, could participate in resolutions with respect to new member appointments as per Article 363 of the TCC. A member approved by the general assembly must be considered as a member appointed by the general assembly. Although the Opinion of the Ministry is not clear in that regard, it would be consistent with its opinion to require registration in such a case, too.

Conclusion

As seen, the Opinion of the Ministry, which requires registration for participation in resolutions for the appointment of members to the board pursuant to Article 363 of the TCC, is not in compliance with the law and the doctrine referred above. In any case, Article 363 of the TCC should not be used for the purpose of disregarding the authority of the general assembly to appoint members to the board of directors.

[i] For the said opinion, please see: http://www.ito.org.tr/wps/portal/tescil-ilan-kurulus?WCM_GLOBAL_CONTEXT=genelgeler. (Access date: 25.01.2013)

[ii] Poroy, Reha/Tekinalp, Unal/Camoğlu, Ersin; Ortaklıklar ve Kooperatif Hukuku, Istanbul 2005, no. 557; Pulasli, Hasan, Sirketler Hukuku Serhi, Ankara 2011, p. 898; Akdag Guney, Necla; Anonim Sirket Yönetim Kurulu, Istanbul 2012, p. 15.

[iii] However, Article 359 of the TCC obliges the legal entity member of the board of directors and its representative to be registered to the registry. The legal nature of such registration is controversial in the doctrine. Although no explicit expression is stated in the text of the article, the justification of the article expresses that the registration herein is constitutive. According to an opinion based on the justification, the registration made pursuant to article 359 is constitutive. Please see Pulasli, p. 898; Kirca, Ismail; Anonim Sirketlerde Tuzel Kisilerin Yonetim Kurulu Uyeligi, Batider 2012/2, p. 53. According to another opinion, for a constitutive registration, the constitutive nature must be explicitly stipulated in the article; therefore registration of the legal entity’s representative is not constitutive. Please see Akdag Guney, p. 17.

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