Is it Obligatory To Appoint A Corporate Representative İn The General Assemblies Of Joint Stock Companies?

August 2013 Tuna Çolgar
% 0

The Turkish Commercial Code (“TCC”) Article 428, which governs the provision of maximum representation of shareholders in the general assembly of a joint stock company, stipulates new representative appointments that are not required in the former Turkish Commercial Code No. 6762.

Article 428/1 TCC regulates the appointment of the body representative and the independent representative. Pursuant to this article “In case the company shall recommend a person, related to the company in any way, in order for the shareholders to appoint as their representatives to vote and carry out other related actions in the general assembly meeting in their name, it shall also recommend another person which is totally independent and neutral for the same position and shall announce these two persons pursuant to the articles of association and publish in the website of the company.” As understood from the article, if the company recommends a related person – body representative – to represent shareholders, it has to recommend another independent and neutral person – an independent representative – to the shareholders. In other words, the appointment of an independent representative is subject to the appointment of the body representative.

The corporate representative is regulated under paragraph two and the subsequent paragraphs of Article 428. This provision, which is intrinsic to Turkish law, aims to recommend persons who may organize the gathering of representative certificates with respect to shareholders which may arrive in large numbers, especially their encouragement with respect to this duty, their acting wholly independent from the company management and fill the gap. Paragraph 2 of Art. 428 TCC stipulates as follows: “Additionally, the board of directors shall invite the shareholders, by an announcement and publication of a message on the website at least forty five days prior to the publication in the Turkish Trade Registry Gazette and announcement on the website of the convocation announcement for the general assembly, to notify the identification, address and e-mail address and phone and telefax numbers of the corporate representative to the company latest within seven days. The persons willing to be corporate representatives shall also be invited to make an application to the company with the same message. The board of directors shall, within the convocation for the general assembly meeting, announce and publish on its website the notified persons, together with the persons referred to in the first paragraph, with their addresses and communication numbers. Proxies may not be collected for corporate representatives unless the procedures of this paragraph are fulfilled.

To summarize, the announcement of the corporate representative must be made at least forty-five days prior to the publication of the convocation of the general assembly meeting in the Turkish Trade Registry Gazette. As is known, pursuant to art. 414 TCC, the general assembly must be called to the meeting with a notice made at least 2 (two) weeks before the meeting, excluding the notice and meeting days. In this case, with a simple calculation, the announcement of the corporate representative must be made 60 (sixty) days before the general assembly meeting; this may create problems in circumstances that require the urgent convocation of the general assembly. Further, in practice, most general assembly plans may not be made before 60 (sixty) days of the date planned for the general assembly. For this reason, the wording of the law constitutes a problem with respect to practice.

In order to relieve the practice, the Ministry of Customs and Trade, General Directorate of Domestic Trade in its opinion dated February 8, 2013, stipulated that the obligation to call a corporate representative, like the independent representative regulated under paragraph one of Art. 428, shall arise in the event a body representative is appointed. However, when the justification of the law and its text is analyzed carefully, it is understood that this Opinion of the Ministry of Customs and Trade, General Directorate of Domestic Trade contradicts the spirit and wording of the Law.

Indeed, if the wording of the provision regarding corporate representation is analyzed, it is not possible to conclude that the appointment of a corporate representative is subject to the appointment of a body representative. The regulation of such an appointment in a separate article supports this opinion. Moreover, the paragraph starts with the expression “In addition”; thus it strengthens the thesis that appointing a new independent representative in addition to the representatives in the first paragraph is provided for in the article. Also, when the wording of the article is analyzed, with a focus on expressions such as “calls”, “requested” and “publishes”, which explain the duties of the board of directors, it is concluded that the board of directors does not have any discretion regarding this issue. The doctrine states that “… all joint stock companies, without any difference, will be obliged to apply the provision with regards to the corporate representative before a certain period of their general assembly meetings.”.

Moreover, explanations in the justification that underpins Art. 428 TCC stipulate that the regulation regarding corporate representation is independent from the first paragraph. For example: “It is possible for the company to not stipulate a body representative in order for the company (management) to be released from the obligation to recommend an independent representative. However, even if the management applies this method, corporate representatives in the third paragraph of the article may come up and the obligation of proclamation may still occur.”

Explanation of the justification of Art. 428 stipulates the consequences of non-compliance with the appointment procedure for a corporate representative as follows: “The non-compliance with this proceeding is grounds for annulment of the general assembly resolutions. This conclusion is derived from Article 445.” Art. 445 TCC, cited as the source from which the sanction of annulment is derived, is parallel to Art. 381 of the former TCC No. 6762 regarding reasons for annulment. However, Art. 446 TCC, which regulates the persons that may file a suit, establishes different requirements from the former provision. To summarize, Art. 446 TCC sets forth four separate inconsistencies as reasons for the annulment of the general assembly. These are, (i) The non-execution of the convocation according to the procedure, (ii) the non-announcement of the agenda as required, (iii) participation and voting of unauthorized persons or representatives to the general assembly and (iv) unjust prohibition of the right to join and vote in the general assembly. Neither the shareholder’s presence at the general assembly nor negative voting has any bearing on the allegation of these inconsistencies. However, only the shareholders who allege that one of these four inconsistencies affected the general assembly resolution may file a suit for annulment. Within this context, if the announcement of the corporate representative is not made, the call/invitation shall be deemed irregular. In this case, the shareholders who allege that the call/invitation is not made in due form, pursuant to Art. 446/2 TCC, may file a suit for annulment in the event they prove that this situation affected the rendering of the general assembly resolution. This “affect condition” is predominantly interpreted as the effect on the quorum. Moreover, it should be noted that even though the Ministry Opinion stated above provides convenience, it does not have a binding nature with respect to the courts.

Finally, it must be noted that the representative appointments foreseen by Art. 428 TCC are obligatory for the joint stock companies listed on the stock exchange and public companies whose shares are distributed to many shareholders. This provision is criticized since it brings additional costs to small joint stock companies. On the other hand, Article 30 of the Capital Markets Law, regarding participation in the general assemblies of public joint stock companies and voting, states that the procedures and principles with respect to gathering representation and voting by proxy shall be determined by the Board. This provision explicitly sets forth that Article 428 TCC shall not be applied within the scope of this Capital Markets Law. The justification of the Capital Markets Law (“CML”) does not explain the grounds for this intervention.

However, as expressed above, since the institution of corporate representation causes several problems with respect to non-public companies, and since it would not be applied together with the new CML in terms of public companies, the interpretations in contradiction with the wording and spirit of the law, but which satisfy the need of the practice, are made and thus the ideal application is reached by actually getting around the current provision.

In light of the determinations and explanations provided above, it is obvious that the appointment of a corporate representative, introduced by Art. 428 TCC, causes substantial problems in practice and the general assemblies conducted by the companies face the risk of annulment due to non-compliance with the procedures stipulated under Art. 428 TCC. We are of the opinion that this situation which involves uncertainties and which may cause important disputes must be urgently resolved through the legal regulations to be made.

All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.

Other Contents

Newsletter Articles
Lawsuit for Dissolution of Companies for Just Cause

The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...

Commercial Law 30.06.2022
Newsletter Articles
Parting Ways in Family Businesses

Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...

Commercial Law 30.06.2022
Newsletter Articles
Carriage of Goods by Road under the Turkish Commercial Code

Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...

Commercial Law August 2017
Newsletter Articles
Ordinary Partnerships

Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...

Commercial Law April 2014
Newsletter Articles
Nationality Of Legal Entities
Commercial Law October 2012
Newsletter Articles
Board Members’ Financial Rights in the Context of Disguised Profit Transfers

The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...

Commercial Law February 2022
Newsletter Articles
Newsletter Articles
Newsletter Articles
General Assembly Summons Lawsuits
Commercial Law August 2021
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Actual Carrier in Carriage of Goods by Sea
Commercial Law February 2021
Newsletter Articles
Newsletter Articles
Newsletter Articles
Freight Forwarder Contract under Turkish Law
Commercial Law September 2020
Newsletter Articles
Veto Rights in Joint Stock Companies
Commercial Law August 2020
Newsletter Articles
Newsletter Articles
Ship Hypothéque under Turkish Law
Commercial Law May 2020
Newsletter Articles
Newsletter Articles
Newsletter Articles
Legal Liability of Limited Company Managers
Commercial Law January 2020
Newsletter Articles
Employer’s Remedies under FIDIC Silver Book
Commercial Law October 2019
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Transfer of Seized Shares
Commercial Law July 2019
Newsletter Articles
Newsletter Articles
Newsletter Articles
Corporatization of Football Clubs
Commercial Law April 2019
Newsletter Articles
Newsletter Articles
2016 York Antwerp Rules
Commercial Law March 2019
Newsletter Articles
Newsletter Articles
Amendments on Capital Loss and Insolvency
Commercial Law September 2018
Newsletter Articles
Foreign Currency Payment Ban
Commercial Law September 2018
Newsletter Articles
Newsletter Articles
Installment Sales Agreements
Commercial Law July 2018
Newsletter Articles
Newsletter Articles
Newsletter Articles
Arrest of Ships under Turkish Law
Commercial Law May 2018
Newsletter Articles
Share Pledges in Joint Stock Companies
Commercial Law May 2018
Newsletter Articles
Newsletter Articles
Updated FIDIC Contracts
Commercial Law April 2018
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Features of Joint Venture Contract
Commercial Law October 2017
Newsletter Articles
Newsletter Articles
Stock Option Plans in Turkey
Commercial Law June 2017
Newsletter Articles
Voting Agreements under Turkish Law
Commercial Law May 2017
Newsletter Articles
Newsletter Articles
Pre-emptive Right in Joint Stock Companies
Commercial Law April 2017
Newsletter Articles
Holding Company Structure under Turkish Law
Commercial Law January 2017
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Loss Of Capital in Joint Stock Companies
Commercial Law September 2015
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Non-Compete Obligation Of The Commercial Agent
Commercial Law December 2014
Newsletter Articles
Right To Request Special Audit
Commercial Law October 2014
Newsletter Articles
Special Committee Of Preference Shareholders
Commercial Law October 2014
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Conditional Capital Increase
Commercial Law March 2014
Newsletter Articles
Newsletter Articles
General Communiqué On Electronic Books
Commercial Law December 2013
Newsletter Articles
Domination Agreements
Commercial Law January 2014
Newsletter Articles
Newsletter Articles
Representation in Joint Stock Companies
Commercial Law December 2013
Newsletter Articles
Squeeze-Out in Group Companies
Commercial Law November 2013
Newsletter Articles
Shareholder Agreements
Commercial Law November 2013
Newsletter Articles
The Regulation On Private Health Insurance
Commercial Law October 2013
Newsletter Articles
Newsletter Articles
Newsletter Articles
Freedom of Settlement of Foreign Companies
Commercial Law September 2013
Newsletter Articles
Branches And Liaison Offices
Commercial Law August 2013
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Conversion of the Commercial Enterprise
Commercial Law April 2013
Newsletter Articles
Newsletter Articles
Trade Registry Regulation
Commercial Law January 2013
Newsletter Articles
Newsletter Articles
Financial Leasing Agreements
Commercial Law December 2012
Newsletter Articles
Newsletter Articles
Newsletter Articles
Advance Dividend
Commercial Law September 2012
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles

For creative legal solutions, please contact us.