Board of Directors Cannot Make Decision on Every Issue

ISSUES THAT THE BOARD OF DIRECTORS CANNOT MAKE DECISION ON

In practice, the issues on which the board of directors of a joint stock company exceeds its authority and makes decisions are in areas that are only granted to the general assembly by law. The general assembly is the body that is formed with the participation of the shareholders and makes decisions on matters that are granted only to it by law, such as the election, dismissal and discharge of the members of the board of directors, distribution of profits, amendment of the articles of association, increase of capital, approval of the company's financial statements and annual activity report. However, the general assembly does not have the status of a permanent body like the board of directors, but is a body that meets once or several times a year. In fact, if extraordinary general assembly meetings convened in exceptional circumstances are excluded, the ordinary meeting of the general assembly of a joint stock company once a year is considered sufficient to fulfill legal obligations. However, the fact that it will meet even once a year does not distract the general assembly from the fact that it is the mandatory organ of the joint stock company.

In this respect, it is a legal obligation to have a general assembly and a board of directors in joint stock companies. The Turkish Commercial Code has accepted the principle of separation of functions between these bodies. In other words, with this new regulation brought by the Turkish Commercial Code, a functional distinction was made between the organs, equivalence in terms of power was accepted between the organs in terms of function, and on the other hand, the pure authority theory that the general assembly was omnipotent and was equipped with the authority to make all decisions was rejected. In other words, the concept of one organ being superior to the other was not accepted; A number of non-transferable duties and powers have been granted to both organs, they are clearly separated from each other and they are intended to be used only by that body, and the transfer of authority is strictly prohibited. Therefore, the general assembly cannot assume the inalienable powers of the board of directors, nor can the board of directors assume the powers of the general assembly. Of course, at this point it would be useful to underline the following point: While it is stated that the general assembly and the board of directors are separate bodies when discussing the separation of functions between bodies in theory and these bodies are perceived as consisting of different people, in practice the majority of our joint stock companies are family companies and belong to the same family. It consists of its members and these partners also serve as members of the board of directors. In other words, the people who make up the general assembly and the people who make up the board of directors are actually the same. For this reason, in many companies, the general assembly is not given enough importance and its existence and necessity are questioned. However, the TCC requires these two bodies to be present in the company. The said obligation is also the same in world practice. Therefore, the point to be considered in joint stock companies is that these persons decide as the general assembly the issues that the Law orders to be decided by the general assembly, and exercise the powers given to the board of directors as the board of directors.

So let's return to our question: On what issues can the board of directors of a joint stock company not make decisions? The answer to this question is actually given in Article 374 of the Turkish Commercial Code, leaving no room for hesitation. According to the said article, the board of directors is authorized to take decisions on all kinds of works and transactions necessary for the realization of the company's business, except for those that are left under the authority of the general assembly in accordance with the law and the articles of association. Therefore, the board of directors cannot make decisions on matters that are left to the authority of the general assembly by the Turkish Commercial Code and the company's articles of association. For this reason, in order to reveal which issues cannot be decided by the board of directors, the duties and powers left to the general assembly by the TCC and the company's articles of association must be clearly stated.

In the first paragraph of Article 408 of the Turkish Commercial Code, "The general assembly takes decisions in cases clearly foreseen in the law and the articles of association." provision is included. In the justification of the said article, it is stated that “The general assembly derives its decision-making authority from the law and the articles of association within the framework of the provisions of the law. The articles of association cannot authorize the general assembly in a way that is contrary to the structure of the joint stock company establishing the organ authority system and the legal distribution of functions among the organs; The board of directors cannot transfer the non-delegable powers assigned to it by law to the general assembly or subject it to its approval. The general assembly cannot take over the non-delegable powers of other bodies. The board of directors cannot assume the powers of the general assembly. In addition, no authority regarding the auditing function can be delegated to the general assembly and the board of directors. It cannot be used by him.” It has been said. Therefore, it is necessary not to interpret the provision of the first paragraph of Article 408 of the TCC in a narrow sense, meaning that the general assembly can only make decisions on matters specified in the law and the articles of association. The aim of the legislator with this provision is that the general assembly takes decisions within the authority limited by the law and the articles of association.

The second paragraph of Article 408 of the Turkish Commercial Code includes the basic powers and duties that the general assembly cannot delegate. In the said paragraph, the duties and powers that the general assembly of the joint stock company cannot delegate are listed as follows:

a) Amendment of the articles of association.

b) Election of the members of the board of directors, determination of their terms, salaries and rights such as attendance fee, bonus and premium, decision on their discharge and dismissal.

c) Dismissal by election of the auditor, except for the exceptions stipulated in the law.

d) Making decisions regarding the financial statements, the annual report of the board of directors, disposal of annual profit, determination of dividends and earnings shares, and the use of reserve funds, including their inclusion in the capital or profit to be distributed.

e) Termination of the company, except for the exceptions provided for in the law.

f) Wholesale sale of significant amounts of company assets.

However, the powers that the general assembly cannot delegate or abandon are not limited to those listed above. Because there are also duties and powers given to the general assembly by various articles of the Law. As a matter of fact, this issue was taken into consideration in Article 408 and it was stated that "non-delegable duties and powers stipulated in various provisions" are reserved. In addition, in the 30th article of the Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Representatives of the Ministry of Customs and Trade to be Attended at These Meetings, published in the Official Gazette dated 28/11/2012 and numbered 28481, some of the duties and powers that the general assembly of the joint stock company cannot delegate are collectively stated. place is given. According to the mentioned Regulation article, the general assembly of the joint stock company cannot transfer the following duties and powers to another body or persons:

a) Amendment of the articles of association.

b) Decisions on the election and dismissal of the members of the board of directors, determination of their rights such as wages, attendance fees, bonuses and premiums, and their release.

c) Selection of the auditor, except for the exceptions provided for in the law.

d) Making decisions regarding the financial statements, the annual activity report of the board of directors, disposition of the annual profit, determination of dividends and earnings shares, and the use of reserve funds, including their inclusion in the capital or profit to be distributed.

e) Deciding to terminate the company and withdraw from liquidation, except for the exceptions stipulated in the law.

f) Wholesale sale of significant amounts of company assets.

g) Determining the term of office of the members of the board of directors, not to exceed three years, if their term of office is not determined in the articles of association.

h) Unless otherwise provided by law; Issuing all kinds of bonds, financial bills, asset-backed bills, other debt securities, including those issued on the discount basis, bills with the right to purchase and exchange, and all kinds of securities, or authorizing the board of directors in this regard.

i) Making decisions about merger, division and change of type.

j) Approval of the dominance agreement.

k) Approval or amendment of the internal directive regarding the working principles and procedures of the general assembly.

l) Approval of the report prepared by the board of directors regarding the reduction of capital.

m) Approval of contracts made within two years from the date of registration of the company regarding the acquisition or leasing of a business or property for a price exceeding one tenth of the principal capital.

However, as we have stated before, the Regulation does not include all of the non-transferable powers of the general assembly of the joint stock company, only the important ones are listed. In practice, from time to time, a misconception may arise that only the matters listed above are within the authority of the general assembly. However, many articles of the Turkish Commercial Code contain provisions directly referring to the general assembly. Therefore, when talking about the non-delegable powers of the general assembly of a joint stock company, all of these regulations must be taken into account. For example;

– If there is no provision in the articles of association, a general assembly decision is required to issue shares at a price higher than their nominal value (TCC, Article 347).

– If a membership in the board of directors becomes vacant for any reason, the board member temporarily elected by the board of directors is approved by the general assembly (TCC, Article 363).

– In order for the company to be acquired or accepted as a pledge, the general assembly must authorize the board of directors (TCC, Article 379).

– A member of the board of directors must obtain permission from the general assembly in order to carry out any transaction with the company on behalf of himself or someone else (TCC, Article 395).

– The permission of the general assembly is required for a member of the board of directors to carry out a commercial transaction within the scope of the company's business on his or her own account or on someone else's behalf, or to join a company dealing in the same type of commercial business as a partner with unlimited liability (TCC, Article 396).

– Unless there is a contrary provision in the articles of association, the chairman of the meeting is elected by the general assembly (TCC, art. 419/f.1).

– The special audit requested by the shareholders is approved by the general assembly (TCC, article 438).

– The general assembly decides on conditional capital increase (TCC, article 463).

– The general assembly has the authority to divide the shares into shares with smaller nominal values, in accordance with the minimum nominal value provision, or to combine the shares into shares with higher nominal values (TCC, Article 477).

– In accordance with the articles of association or by amending the articles of association, the general assembly has the authority to decide on the issuance of dividend shares in favor of the owners of shares whose price has been destroyed in accordance with the law, creditors or those related to the company for a similar reason (TCC, Article 502).

– The general assembly has the authority to dismiss the liquidators appointed by the articles of association or by the decision of the general assembly and the members of the board of directors who perform this duty and to appoint new ones in their place (TCC, article 537).

– The decision to return from liquidation is taken by the general assembly (TCC, article 548).

In addition, the company's articles of association may stipulate certain powers that can only be exercised by the general assembly. For this reason, the non-delegable powers legally granted to the general assembly are not used by the board of directors, and the general assembly does not delegate any authority in this regard; If delegations of authority arising from the company's articles of association are desired, then the articles of association must be amended.

However, let's assume that, despite all these regulations, the board of directors of the joint stock company acted contrary to the principle of non-functionality between organs and took a decision and implemented it on a matter that was within the authority of the general assembly. Because, as mentioned at the beginning of our study, it may be observed that some boards of directors make such decisions from time to time. For example, if the attendance fee and wages to be paid to board members are determined by the decision of the board of directors, or if the board of directors decides to issue bonds, will these decisions be valid? Let us immediately state that such decisions of the board of directors are considered void and do not gain validity. Because; In Article 391 of the Turkish Commercial Code, it is clearly emphasized that the decisions of the board of directors "that fall within the inalienable powers of other bodies and regarding the transfer of these powers" are void.

In this respect, in accordance with the provisions of Article 391 of the Turkish Commercial Code, the court may be requested to determine that the decisions of the board of directors that fall within the scope of the inalienable duties and powers of the general assembly are invalid. A declaratory action may be brought by those who have a legitimate interest, without being bound by a period of time. False decisions are not valid from the beginning and cannot be corrected later; They are taken into consideration by the court ex officio. In addition, invalid decisions also contain a significant drawback in terms of transaction security: The danger and threat of a decision of the board of directors being declared invalid even years after the decision is taken can cause great anxiety in the company management, shareholders and creditors. The court's determination of nullity years later eliminates many relationships established by that decision, often with retroactive effect. For example, if the members of the board of directors have determined their own salaries, and subsequently there is a change in the partnership structure of the company, and the people who have entered the company as new shareholders are aware of this situation and request the nullity of the said decision from the court, the members of the board of directors may be in a difficult situation and may encounter undesirable situations such as paying their wages to the company. Due to the mentioned drawbacks, the board of directors of the joint stock company must strictly refrain from using the non-delegable duties and powers of the general assembly.