Abstract
Corporate law is a branch of a law, which basically regulates different types of partnerships and capital models. Within corporate law, companies are classified in different forms according to their legal nature in many different areas. In this article, the legal basis for determining the scope of the noncompetition obligation in terms of time, person and the activities under the noncompetition obligation within the scope of the legal regulations in Turkish law regarding the noncompetition obligation will be set forth. In this article, the noncompetition obligation and matters concerning corporate law will be provided and reviewed in accordance with the provisions of the Turkish Commercial Code (“TCC”) dated 13 January 2011 and numbered 6102 and the Turkish Code of Obligations (“TCO”) dated 4 February 2011 and numbered 6098. In this article, the noncompetition obligation of the shareholders and directors of the company will be reviewed separately for the joint stock companies and the limited liability companies, which are accepted as capital companies. In addition, the noncompetition obligation in the ordinary companies will be reviewed under the provisions of the TCO.
I. INTRODUCTION
In corporate law, certain limitations on those who chave certain qualifications, such as directors or partner, to engage in business activities on the company’s or the enterprise’s field of operation are provided by the regulations regarding the noncompetition obligation and it is aimed to prevent them from harming the company or the enterprise and using the freedom of competition in the detriment of the rights of the others by using the information that they acquire during their duties. However, this prohibition must not be considered as unlimited. It is not possible for these prohibitions to apply where the enterprise and the company absent from sustaining any loss. Also, prohibitions that enormously limit the liberty of commerce will be deemed as invalid 1.
In companies, there is a risk for the members of the board of directors and shareholders of the company to have the opportunity to access many secrets of the company and to use this information in their own interests for the activities within the company’s field of operation. Taking these reasons into account, the scope of the noncompetition obligation, which is regulated by various provisions of the TCO and the TCC, will be reviewed in this article.
2. NONCOMPETITION OBLIGATION ON CORPORATE LAW
The noncompetition obligation arises with the acquisition of the director or shareholder title pursuant to the respective legal regulations and cease to exist by the loss of such qualities2. Provisions regarding the noncompetition obligation are not mandatory but supplementary and regulatory3. Therefore, the scope of the noncompetition obligation can be narrowed, expanded and even completely abolished by a regulation in accordance with the respective law. The reason for the provisions’ reglating the noncompetition obligation being not mandatory is that they regulate the internal relations of the company and are concerned with the personal interests of the partners, in other words, they are not related to the public order. In this section, the question of how the noncompetition obligation will be applied to the company directors and shareholders will be evaluated by reviewing the noncompetition obligation in joint stock and limited liability companies which are capital companies and also in ordinary companies which are not regarded as capital companies.
The noncompetition obligation concerning the companies is regulated by the articles of TCC and TCO, which provide the subjects, scope, limits and results of the noncompetition obligation. Pursuant to Article 124 of TCC, the collective companies and commandite companies are considered as partnership companies; joint stock companies, limited liability companies and commandite companies in which the capital is divided into shares are considered as capital companies. The mentioned companies are characterized as commercial company and are regulated by TCC accordingly. On the other hand, companies that are not included in these categories are regarded as ordinary companies and are regulated by TCO. For example, the noncompetition obligation regarding the joint stock companies and the limited liability companies is regulated by TCC, where the noncompetition obligation regarding the ordinary companies is regulated by TCO.
A. Noncompetition Obligation in Ordinary Companies
In the ordinary companies, the noncompetition obligation applies to all of its partners. The noncompetition obligation is imposed to all partners, as it is considered to be an extension of their obligation of loyalty to the company4. Therefore, even if the partnership is directed by one or more partners under an ordinary partnership agreement or a resolution taken by the partners, not only the managing partner or partners but also all of the partners are obliged to non-compete. In terms of the noncompetition obligation of the partners, the acts of such partners do not necessarily have to be on their self interests, but the acts which are carried out for the interests of the third parties is also subject to the noncompetition obligation5.As a matter of fact, in Article 626 of the TCO, it is provided that the partners cannot engage in transactions for their self of third parties’ interest that would harm or prevent the purpose of the partnership and so it is clearly emphasized that the transactions of the partners for the third parties’ interest are subject to the noncompetition obligation. Again, as explicitly stated in Article 626 of the TCO, partners of the ordinary companies are prohibited from engaging in any business activities or transaction that prevents or damages the purpose of the company.
B. Noncompetition Obligation in Joint Stock Companies
a. Noncompetition Obligation of Company Directors in Joint Stock Companies
Pursuant to Article 396 of the TCC, a board member of a joint stock company cannot engage in commercial activities that fall within the scope of the company’s field of operation either on their own or on a third party’s account and cannot engage in a partnership, which operates in the same field as an unlimitedly liable partner6. However, the noncompetition obligation may be removed with the permission granted by the general assembly of the joint stock company.
The optional rights that the joint stock company may use in case of a noncompetition breach are provided in the TCC. Occurrence of an act that breaches the noncompetition obligation is sufficient for the enforcement of the sanctions in Article 396 of the TCC and there is no additional need for damages to be incurred by such act7. The board of directors may use the following optional rights against the member who acts in breach of the noncompetition obligation8.
•Compensation of the damages arising from such act,
• having the action to be deemed as being made on behalf of the company,
• having the interests arising from the transactions made on the third party’s account to be transferred to the company,
• if the board member has engaged unlimitedly into another partnership dealing with the same business, requesting the board member to withdraw from the partnership or to transfer the interests gained in the partnership to the company9.
The exercise of the rights is subject to statute of limitation by three (3) months following the date on which the violation is learnt and one (1) year from the date on which the breach occurred. Provisions with respect to the responsibilities of the board members shall be reserved even if one or both of the above rights are used. In other words, the responsibilities of the members of the board of directors arising from the relevant legislation and the articles of association will continue.
On the other hand, the general assembly of the company may relieve the member or members of the board of directors of the company from the noncompetition obligation. In this case, such members may engage in activities that fall within the scope the company’s field of operation. On the other hand, if the company claims for compensation, it may claim both its actual loss and its loss of profit10.The loss of profit refers to the deprivation of the profits due to reason that the transaction is not made on the company’s account. If the company claims the transaction to be deemed as being made on its behalf, it will not be a party to the transaction; only the rights and obligations of the member of the board of directors resulting from the transaction shall belong to the company.
While there is no consensus in the doctrine, there are some views that includes the respective transaction in the scope of the obligation after the term of duty expired if the transaction, which is contrary to the noncompetition obligation, was initiated during the term of duty. As a matter of fact, there are also some arguments providing that the board members may also be prohibited for the period after the expiration of their membership by an agreement to be signed between the company and the board members11. In this case, it is argued that Article 444 of TCO, which regulates the employee’s postagreement obligation to non-compete may be applied concerning the subject, conditions, period and similar terms of the agreement. The Court of Cassation has decisions that are different from the views in the doctrine. In the decision of 11th Civil Chamber of the Court of Cassation dated 04.10.2012 and numbered 2010/11204 E. and 2010/15168 K., it is provided that the noncompetition obligation is limited with the term of duty by stating that “The noncompetition obligation of the board members disappears within the expiration of the board membership.” The 11th Civil Chamber of the Court of Cassation provided in another decision dated 19.01.2012 and numbered 2011/13747 E. and 2011/356 K., that “The noncompetition agreement between the parties stipulated for the period after the expiration of the contract, is invalid and contrary to Article 48 of Turkish Republic Constitution which is titled as “Freedom to Work and Conclude Contracts.”
The board of directors is authorized to exercise abovementioned optional rights. According to Article 396 of the TCC, “The right to choose of one of these rights shall belong to the members other than the member acting against the first paragraph.” The company’s board of directors may exercise one of the specified rights by adopting an appropriate resolution12.However, if the number of members, who breached the obligation, is more than the other members and accordingly if the board of directors cannot resolve due to the lack of quorum without these members, the abovementioned rights shall be exercised by the general assembly13.
b. Noncompetition Obligation of the Shareholders in Joint Stock Companies
The shareholders of joint stock companies are not legally obliged to non-compete. As is known, it is provided in Article 329 of the TCC that the principal obligation of the shareholders of joint stock companies against the company is to pay the share prices. The relevant provision is the basis of the single debt principle. However, in the abovementioned legal regulations and doctrine, it is also provided that the shareholders of joint stock company may also have certain secondary obligations. However, the dominant view in the doctrine does not accept the noncompetition obligation as a secondary obligation. Accordingly, it is provided that the shareholders of the joint stock companies shall not be subject to the noncompetition obligation against the company.
The noncompetition obligation is viewed within the scope of confidentiality obligation by some remarks in the doctrine14.In accordance with the aforementioned remark, even though the noncompetition obligation is not accepted as a liability of the joint stock company’s shareholders, as the shareholders of the company have information regarding the company’s secrets, goals and activities, the acts of the shareholders it by using the abovementioned information against the company in the works and transactions to be done is viewed as noncompliance with the confidentiality obligation. As stated above, in the doctrine, according to Pulaşlı, the purpose of the confidentiality obligation is as follows:
“To prevent the disclosure of information of the company that would be detrimental if learnt by the third parties and would harm the company’s competitiveness, thus would harm the company if learnt by the third parties15.”
In accordance with the aforementioned definition, keeping the secret of the company is essential for ensuring a healthy competitive environment, in pursuant to Pulaşlı’s respective view; the confidentiality obligations includes the noncompetition obligation.
It must also be noted that, shareholders, who are the company’s board members, are obliged to non-compete. Such shareholders are subject to the noncompetition obligation under the same conditions with the other board members who are not shareholders.
C. Noncompetition Obligation in Limited Liability Companies
a. Noncompetition Obligation of the Company Directors in Limited Liability Companies
In the second paragraph of Article 626 of the TCC, the noncompetition obligation of limited liability company directors is regulated as follows;
“The directors cannot act in competition with the company if otherwise is not provided in the articles of association or if all other partners do not grant written consent. The articles of association may provide the approval decision of the general assembly instead of approval of the shareholders.”
According to the respective provision, the company directors are subject to the noncompetition obligation unless otherwise specified in the articles of association. With respect to the noncompetition obligation provided in the provision, in the doctrine, it is accepted that the noncompetition obligation is not mandatory but a legal prohibition. Therefore, the scope of the noncompetition obligation concerning the company directors may be provided by the resolution of the general assembly of the company and by the articles of association16.
b. Noncompetition Obligation of the Partners in Limited Liability Companies
Although the limited liability companies stand out with personal factors, primarily, they are capital companies. Therefore, like the joint stock companies, partners of limited liability companies are not subject to the noncompetition obligation in principle. As stated above, in principle the noncompetition obligation in limited liability companies only applies for the directors. Nevertheless, although the noncompetition obligation does not apply as a rule, in accordance with the second paragraph of Article 613 of the TCC, the partners must refrain from damaging the interests of the company.
In cases where the noncompetition obligation is regulated in the articles of association, the TCC provides another option for the concerned partner. As explicitly provided in the last paragraph of Article 613 of the TCC, if all of the remaining partners grant written approval, partners may engage in activities, which are contrary to the noncompetition obligation.
3. CONCLUSION
Even though the right to compete is essential considering the technological developments, strengthening the
market and providing employment, there is no doubtthat this right must be limited like every rights. Naturally, the people who must be bound by this limitation
are the company executives and partners who are vested with all the secrets of the company. The noncompetition obligation of executives and partners in joint
stock, limited liability and ordinary companies is regulated by the provisions of the TCC and the TCO. In this
respect, as mentioned in the above sections, partners
of joint stock and limited liability companies are not
obliged to non-compete in principle yet, some of the remarks in the doctrine provides that certain limitations
regarding the noncompetition obligation within the
scope of the secondary obligation apply for the company partners as well. In terms of company executives,
the noncompetition obligation is explicitly regulated
in the TCC and TCO depending on the type of the relevant company. Pursuant to the respective provisions,
competition of company board members with the company is limited under certain conditions. As mentioned
above, the limitations are compatible for directors of
joint stock and limited liability companies.
BIBLIOGRAPHY
Pınar Aşık, Anonim ve Limited Şirketlerde Rekabet Yasağı, 2007.
Yaşar Can Göksoy, Ortaklıklar Hukukunda Rekabet Yasaklarının Kapsamı, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi Volume: 9, Special Edition, 2007.
Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014.
Ersin Çamoğlu, Anonim Ortaklık Yönetim Kurulu Üyelerinin Hukuki Sorumluluğu, 3rd Edition, İstanbul 2010.
Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2nd Edition, Ankara 2013.
Decision of 11th Civil Chamber of the Court of Cassation dated 04.10.2012 and numbered 2010/11204 E. ve 2010/15168 K.
Decision of 11th Civil Chamber of the Court of Cassation dated 19.01.2012 and numbered 2011/13747 E. ve 2011/356 K.
FOOTNOTE
1 Pınar Aşık, Anonim ve Limited Şirketlerde Rekabet Yasağı, 2007.
2 Yaşar Can Göksoy, Ortaklıklar Hukukunda Rekabet Yasaklarının Kapsamı, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi Volume: 9, Special Edition, 2007, p. 633-681.
3 Pınar Aşık, Anonim ve Limited Şirketlerde Rekabet Yasağı, 2007.
4 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014, p.63.
5 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014, p.63.
6 Ersin Çamoğlu, Anonim Ortaklık Yönetim Kurulu Üyelerinin Hukuki Sorumluluğu, 3rd Edition, İstanbul 2010, s.101.
7 Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2nd Edition, Ankara 2013, p. 23.
8 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014, p.376.
9 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014, p.375.
10 Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2nd Edition, Ankara 2013, p. 23.
11 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 13th Edition, İstanbul 2014, p.375.
12 Ersin Çamoğlu, Anonim Ortaklık Yönetim Kurulu Üyelerinin Hukuki Sorumluluğu, 3rd Edition, İstanbul 2010, p.104.
13 Reha Poroy, Ünal Tekinalp, Ersin Çamoğlu, Ortaklıklar Hukuku, 9. Bası, p.376.
14 Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2nd Press, Ankara 2013, p.559.
15 Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2.nd Press, Ankara 2013, p.559.
16 Hasan Pulaşlı, Şirketler Hukuku: Genel Esaslar, 2. Baskı, Ankara 2013, p. 757.
