The Authority to Represent and Bend Joint-Stock Companies and the Problems Encountered During the Registration
Abstract
There are differences between regulations and their implementations regarding the transfer of the management authorization and its consequences in the former Turkish Commercial Code (numbered 6762 (“fTC”), the new Turkish Commercial Code (“TCC”) numbered 6102 and articles 131 and 132 of the Law numbered 6552 (“Omnibus Law”). These differences are related to the procedures and the consequences of the commercial representative appointment process in the joint stock and limited liability companies. Registration and announcement of the representative authorities of the representatives to be appointed, which were not allowed to be registered on a legal basis during the terms of the fTC or TCC are enabled through the regulations brought by the Omnibus Bill; including restrictions on amount or subject of the transaction. In this manner, a problem of practice regarding the registration of the authorized signatories and the scope of their authorities at trade registry and issuing notarized circular of signature, is intended to be solved. Hereby with this article, the new practices brought by the TCC and by articles 131 and 132 of the Omnibus Law and some problems encountered in practice by the joint-stock companies such as registration process at the trade registry shall be indicated.
1. INTRODUCTION
The magnitude of business corporations and economic requirements nowadays, made one man business corporations an exception and diverted its management structure through a system of representatives, which became a common practice. Representation of legal entities is carried out by legal bodies, such as the board of directors of joint-stock companies1.
There are two issues which need to be scrutinized before dwelling further on the concept of representative authority, which resides within the members of the board of directors at joint-stock companies. The first meaning of the representative authority states the authority to represent the corporation within the internal relation structure. In the relationship between the represented company and the board of directors, the represented company is entirely dominant and free as regard to limiting the scope of the authority to represent externally by employing internal representative authority.
The other meaning of the representative authority is that the power of representative authority is granted to the board of directors in order to represent the company in external relation in accordance with the internal authority which is granted. The represented company has the opportunity to consolidate the authorization which is granted to the representative falling within the internal authorization. The power of representation that falls within the external authorization is determined by legislation, in order to safeguard legal transactions2.
Therefore, in this article we will elucidate on the differences between the previous commercial practices and the current one and try to reflect the influences it has had on the commercial life as such.
2. THE CONCEPT OF REPRESENTATION AND COMMIT
2.1. The Representative Authority of the Board of Directors in Joint Stock Companies
Representation of a company denotes the binding nature of transactions made on behalf of the company. According to the TCC, the board of directors is in control and owns the right to represent joint-stock companies against third parties and shareholders3. Therefore, the board of directors is the legal representative of the jointstock company, which means that the board of directors is legally authorized to represent it. The board of directors exercises its representative authority on behalf of the company by signing under the title of the company4. In this way, their signature samples (circular of signatures) are registered in the trade registry after the notarization process, as the organs authorized to represent the company start to work.
The board of directors might consist of one person or more than one person5. Even though the general rule requires joint signatures (double signature) of two representatives who have signing authorities on behalf of the company, the TCC has brought two exceptions to this rule6. First exception is to regulate any rule other than double signatories in the articles of association of the company, while the second one is the board of directors to be comprised of one member.
Apart from the exceptions specified in the legislation, authority to represent the company of the authorized signatories shall not be restricted in principle. What is really intended here is to protect third parties performing transactions with the company. In the event of restricting the authority to represent by way of exceeding the exceptions specified in the legislation, it shall not bind the third parties performing transactions with the company in good faith, even though this restriction is registered and announced at trade registry7.
The authorized persons who are appointed with restrictions in representing the company or financial issues, such as commercial agent or other merchant assistants, shall be appointed by way of issuing an internal directive, which specifies restrictions of authorities and approves it through resolution of the board of directors and after the registration thereof8.
The board of directors could transfer its authority to represent the company to one or more members by withdrawing the authority of the other members as well as transferring authority of the other members to third parties by keeping at least one member of the board of directors authorized9. In this case, the other members, other than the member or members who have the authority to represent the company shall become the “member of the board to directors who are not authorized to represent”. The legislator has banned the transfer of whole representation authority within the company to third parties and adopted that at least one of the transferees is required to be member of the board of directors.
Since the expression “required to have the authority to represent” stated in the article is interpreted in practice as unlimited authority, one of the main conditions of the transfer of authority by way of issuing an internal directive is to authorize at least one member of the board of directors to represent the company without any limitation. In the former practice, trade registries used to register the restrictions of representative authority such as signing authorities including restrictions on amount or subject of the transaction even it was unlawful. In the doctrine, it is held that restricting the registered signing authority cannot benefit from the positive function of the trade registry. In this context, the bad faith of the third parties could only be claimed for the transaction performed, but will also not bind the company in the event that third parties are aware or should be aware of the restriction regarding the signing authority. Although no amendments had been carried out in the relevant provisions of the TCC, trade registries have ceased registering signing authorities including restriction of authorities except legally permitted ones or the ones given to the commercial proxies after enactment of the TCC.
Therefore, many problems confronted during arrangement of circular of signature by notary publics including signing authorities not registered to the trade registry. In fact, the new regulation accepted is not related to the problem arising from the new provisions of the TCC, but an ongoing practice since the period of the fTC is aimed to be put on a legal ground10.
2.2. The Omnibus Law and Its Concomitants Concerning Represent and Commit
A few amendments have been made in the TCC through the Omnibus Law, including major one which we find in the 7th clause11 of article 371, which regulates the authority to represent the company. Under such a provision, it is stated “except the ones mentioned above” which indicates the ones who already do not have authority to represent. With this it is prescribed that the representative authority might be granted for two groups of people, which are (i) members of the board of directors without any representative authority and (ii) the individuals affiliated the company with a labor contract12. Consequently, representatives assigned through this provision shall have the characteristics of a commercial representative.
3. ASSIGNMENT OF A REPRESENTATIVE PROCEDURE
3.1. Drafting and Registration of an Internal Directive
Within the scope of the Omnibus Law13, it is stipulated that in order to determine the registration and announcement to the trade registry of the duties and authorities of such representatives through a mandatory internal directive. The point of this provision is to define duties and authorities for the positions to be granted as limited representative authority in an internal directive. Thus, companies request to limit or classify the authority to represent the company could accomplish their dispositions by way of registered and declared internal directive. Additionally, the transaction of determination by name and assignment of the persons to be appointed for these duties shall be executed with a separate resolution of the board of directors, not with an internal directive14.
3.2 The Status of the 7th Clause of Article 371 of the TCC against Turkish Code of Obligations and the Problems in Practice
According to the provision which is introduced by the Omnibus Law, the board of directors may assign the members of the board of director which are not authorized to represent, or the individuals affiliated with the company with a labor contract such as representatives with limited authorization or other merchant assistants15. It is stated that the content of the duties and authorities of the individuals, who shall be assigned within this scope could be arranged upon request by stating in an internal directive to be issued. Herein, a problem arises regarding the evaluation of the representative authority of commercial proxies and other merchant assistants within the limitation16 designated under Turkish Code of Obligations (“TCO”) numbered 6098.
Pursuant to such limits, commercial representative is authorized to perform “usual transactions” of the company17. This regulation allows the merchant to freely restrict the authorities of its commercial representative with specific businesses and transactions and to determine the limit of these businesses. The opportunity to eliminate the good faith of the third parties through registration and announcement of such limitation has been provided by the Omnibus Law18.
The registration of the authority to represent includes for instance restrictions on amount or subject of the transaction, which is not allowed either at the period of fTC or at the period of TCC before the Omnibus Law has become effective. In the current state it is possible to register the authority to represent, by way diverting the rules regarding registration of the restricted signing authorities with the new implementation.
In other words, representative authorities of the commercial representative whose registration has not been provided within the scope of the TCO19, has been enabled to register and limitation of authorization that might be registered and regarded as numerous clauses20, is extended in some respects. In our opinion, a problem in practice concerning registration of signing authorities and scope of their authorities to trade registry and issuing a notarized circular of signature is aimed to be solved by way of the amendment made21 in the Omnibus Law regarding granting authority to represent. In cases where there is an appropriate registration and announcement in accordance with the conditions set out in the new practice, such registration and announcement eliminate the good faith of the third parties22. Therefore, the company shall not be liable for the transactions performed by way of exceeding the registered and the announced limits of the authority.
4. CONCLUSION
To make a general evaluation, in the former practice, the registration of limitation of authorities which was not allowed within the scope of the legislation, in the previous practice was not eliminating the good faith of the third parties. This situation was used to be solved by the issuance of a circular of signature including the limitations and informing the other party regarding limitation of authorities, by submitting the circular of signature and in this manner by way of eliminating the good faith of the third parties.
Therefore, the registration of the limitation of authority has no importance and the company shall not be liable for transactions performed by exceeding the limits of the authority. Within the frame of the new provision, there shall be no good faith of the third parties in case a certificate of authority is issued and is submitted to the other party.
Within the scope of the TCC regarding the joint-stock companies, in order for the members of the board of directors, not being authorized to represent the company and other individuals affiliated the company with a labor contract, to be assigned as commercial representatives with limited authorities or other merchant assistants, the scope of the representative authorities should be determined in an internal directive and the representatives should be assigned by way of a new resolution of the board of directors.
Within the scope of the former practice, although the trade registries were used to register the limitations of representative authorities other than the ones allowed explicitly within the legislation and even no amendments made regarding this matter, few trade registries started not to register the signing authorities including limitations of authority except explicitly allowed ones within relevant legislation or granted ones to the commercial representative, since they started to accept the former practice as unlawful. Following the above mentioned practice, many problems confronted the notary publics regarding the draft of circular of signature including signing authorities which are not registered in the trade registry. Moreover, the new practice started to be implemented is not related to a problem arising from the new provisions of the TCC; however an ongoing practice since the period of the fTC is aimed to be put on a legal ground23.
The assignment of the authority to represent the board of directors to third parties as managers or to one or more managing members required at least that one member of the board of directors should have the authority to represent the company24. With the aforementioned regulation, the transfer of the whole authority to represent the company is aimed to inhibit; in case such transfer requires at least a member of the board of directors with the unlimited authority to represent the company and an internal directive determining this authorization. Even the relevant provision does not clearly mention as “unlimited”, it is common practice that this authorization should be regarded as unlimited. Despite the existence of a provision with the same meaning in the period of the fTC, former practice was in effect in the period of the TCC and the trade registries was not used to seek for such obligation, even no amendments made as mentioned above, some trade registries started to evaluate this situation unlawful and started not to register the transfers of authorizations including any member of board of directors with an unlimited authority to represent.
BIBLIOGRAPHY
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Footnote
1 Alihan Aydın, “Anonim Ortaklık Yönetim Kurulunun Temsil Yetkisinin sınırları ve Temsil Yetkisinin/Gücünün Kötüye Kullanılması Sorunu”, Banka ve Ticaret Hukuku Dergisi 1 (2014), p. 126.
2 Aydın, Alihan. “Anonim Ortaklık Yönetim Kurulunun Temsil Yetkisinin sınırları ve Temsil Yetkisinin/Gücünün Kötüye Kullanılması Sorunu”, p. 180, 181.
3 TCC, Article 374
4 TCC, Article 371
5 TCC, Article 359/1
6 TCC, Article 370
7 This limitation is only effective with regard to the individuals whom is already aware of the restriction on the representative authority.
8 TCC, Article 367
9 TCC, Article 370/2
10 Veliye Yanlı, Gül Okutan Nilsson, “Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini”, Banka ve Ticaret Hukuku Dergisi 4 (2014): p. 8.
11 The board of directors may assign the members of the board of directors not authorized to represent or the individuals affiliated the company with a service agreement as the representatives with limited authorization or other merchant assistants except the ones mentioned above.
12 Yanlı, Nilsson. “Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini”, p.10
13 The duties and authorities of the ones who shall be assigned pursuant to the condition brought by article 371/1 of the TCC shall be clearly determined in the internal directive that shall be drafted in accordance with the article 367 of the TCC. In this case, registration and registration and announcement of internal directive are compulsory. Commercial proxies and other merchant assistants cannot be assigned by way of internal directive.
14 Yanlı, Nilsson. “Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini”, p.20
15 TCC, Article 371/7.
16 TCO, Article 551 and 552.
17 TCO, Article 551.
18 TCC, Article 371/7.
19 TCO, Article 549.
20 TCC, Article 371/3.
21 TCC, Article 371/7.
22 TCC, Article 36/3.
23 Yanlı, Nilsson. “Anonim ve Limited Şirketlerde Sınırlı Yetkili Temsilci Tayini”, p. 8.
24 TCC, Article 370/2.
