Joint-Stock Companies Article Series – The General Assembly’s Powers and Delegation of Authority Under Turkish Law

Author: Atty. Deniz Nalbant

I. GENERAL OVERVIEW

Joint-stock companies are entities with legal personalities that carry out their management activities through their organs. Unlike sole proprietorships, which lack legal personalities, joint-stock companies typically have a greater number of shareholders and operate under a limited liability regime. Due to these characteristics, sole proprietorships do not possess structured organs, and partners tend to participate directly in the company’s activities. In contrast, joint-stock companies are structured with organs, adopting a division of labor to efficiently manage their activities.

To sustain their existence and continue operations, joint-stock companies are legally required to have two fundamental organs: the Board of Directors (BoD) and the General Assembly (GA). While the old Commercial Code (OCC) also recognized “Auditors” as an organ, the new Turkish Commercial Code (TCC) no longer considers them as such[1].

The relationship between these two organs was addressed in the OCC but contained ambiguous and debatable provisions. One such debate revolved around whether a hierarchy existed between these organs. The enactment of the TCC (Law No. 6012) sought to resolve these uncertainties. Under the TCC, the BoD and GA are regarded as two interdependent organs that must cooperate to ensure the proper functioning of the company.

The General Assembly, regulated under Article 407 and subsequent provisions of the TCC, serves as a crucial organ for the operation of joint-stock companies and is the sole decision-making mechanism of the partnership. This article series will first examine the concept of the General Assembly, its scope, and its various types. Subsequently, General Assembly meetings will be analyzed, including procedures for decision-making, meeting convocations, participation methods, registration of decisions, and finally, the invalidity of such decisions, thus concluding the series section on General Assemblies.

II. GENERAL ASSEMBLY

The General Assembly is an organ where shareholders or their representatives convene at least once a year or as necessary. Many decisions concerning the company are made in the GA, and these decisions, pursuant to TCC Article 423, bind all shareholders (regardless of their attendance), the Board of Directors, other executives, and the company itself. In joint-stock companies, the BoD functions as the executive organ, while the GA serves as the decision-making organ.

According to TCC Article 407, as a rule, the General Assembly is the sole forum where shareholders exercise their rights related to the company, such as voting. Exceptions to this rule include rights explicitly granted by law to be exercised outside the General Assembly, such as the right to file lawsuits (e.g., challenging the invalidity of GA decisions under TCC Articles 445 et seq.) and the right to information and examination (TCC Article 437)[2].

As a general rule, the General Assembly convenes upon a call to decide on a specific agenda. The matters of convocation and agenda will be elaborated upon in subsequent articles in this series.

III. POWERS AND DELEGATION OF AUTHORITY IN THE GENERAL ASSEMBLY

The duties and powers of the General Assembly are outlined in TCC Article 408. The provision stipulates that the General Assembly may only make decisions in situations explicitly provided for in the law and the articles of association. Consequently, in all other cases not explicitly regulated by law or the articles of association, the other main organ, the Board of Directors, can be deemed authorized[3].

Under TCC Article 408, subject to the non-transferable powers and duties specified in various provisions, the General Assembly has authority to decide on:

• Amendments to the Articles of Association,
• Election, terms, remuneration, benefits (such as honoraria, bonuses, and premiums), discharge from liability, and dismissal of Board of Directors members,
• Election and dismissal of auditors, except in cases otherwise stipulated by law[4];
• Decisions regarding financial statements, the annual report of the Board of Directors, the allocation of annual profits, distribution of dividends and earnings, and the use of reserves, including incorporation into capital or distribution as dividends,
• Dissolution of the company, except in cases otherwise stipulated by law,
• Wholesale disposal of significant company assets[5].

Other provisions of the TCC also assign specific powers and duties to the General Assembly. Examples include decisions on mergers, divisions, and type changes of joint-stock companies (TCC Articles 151, 173, 189), as well as the appointment and dismissal of liquidators (TCC Articles 536/1 and 537/1). Additionally, under TCC Articles 340 and 408/1, the Articles of Association may include provisions granting specific powers and duties to the General Assembly for matters explicitly stipulated by law.

 

FOOTNOTES

[1] In paragraph 129 of the general preamble to the TCC, it is stated that auditors are no longer considered an organ of joint-stock companies and that auditing activities for companies of all sizes have been entrusted to independent auditing institutions or, in the case of small joint-stock companies, to certified public accountants or sworn public accountants. However, in the preamble to Article 530, it is noted that whether auditors constitute an organ is left to academic interpretation. Although there are various discussions on this topic, the prevailing opinion is that auditors ceased to be an organ under the new law because the powers they previously held under the old law as an organ were not granted under the new law.

[2] Mehmet Bahtiyar, Ortaklıklar Hukuku (Beta, 2017) pp. 147.

[3] Levent Biçer and Esra Hamamcıoğlu, ‘Anonim Ortaklıklarda Genel Kurulun Devredilemez Yetkileri Kapsamında Önemli Miktarda Şirket Varlığının Toptan Satışı ve Uygulama Alanı’ (2013) 1(1) KHÜHFD, pp. 33-52.

[4] The auditor is appointed by the court in accordance with Article 399/6 of the TCC or a new auditor is appointed by the court explicitly for reasons stated in the article.

[5] There are differing opinions arguing that this could cause practical issues. It is asserted that the concept of a “significant amount” is ambiguous and must be evaluated on a case-by-case basis. Additionally, whether pledge transactions fall under this provision and whether a General Assembly decision is required for such transactions remain topics of debate. According to one opinion, pledge transactions are not covered under Article 408. Another opinion suggests that Article 408 should apply by analogy. The TCC does not specify a ratio or criterion for what constitutes a “significant amount.” Determination may be challenging in cases where assets vary. At this point, Biçer and Hamamcıoğlu argue that when a dispute arises, the court must decide whether the asset sold constitutes a significant amount, considering the company’s assets and characteristics, emphasizing that a general ratio cannot be established. They note that if a ratio must be determined, decisions regarding bulk sales exceeding 60% of the company’s assets should require approval by the General Assembly. (See Biçer/Hamamcıoğlu, Genel Kurulun Devredilemez Yetkileri, pp. 33-52.) Additionally, the Court of Cassation (11th Civil Chamber, dated 13.02.2006, File No. 2005/1362, Decision No. 2006/1253) states that if the company has a single asset or an asset vital to its continued existence, decisions should not be made by the authorized representative but rather by the shareholders’ assembly. It only considers the transfer of a trademark as vital for the company’s continuity. One critical issue regarding the wholesale disposal of a significant amount of company assets is that no supermajority quorum has been prescribed for such decisions. This deficiency has been criticized by academics. Although this issue was attempted to be addressed by the Communiqué on Corporate Governance Principles, the regulation’s placement within secondary legislation has drawn criticism for violating the hierarchy of norms (See Biçer/Hamamcıoğlu, General Assembly’s Non-Transferable Powers, pp. 44).