The dismissal of directors in limited companies is an important issue encountered in corporate governance within the Turkish legal system. Limited companies are a popular type of company among small and medium-sized enterprises due to their capital structure. Dismissal of Directors in Limited Companies holds great significance for the sustainability of internal management and legal security in these companies. The management structure and the duties and responsibilities of directors in such companies are regulated by the Turkish Commercial Code (TCC). In this article, we will focus on the Dismissal of Directors in Limited Companies within the framework of the TCC and the legal consequences of these processes.
Directors of limited companies are appointed either through the company’s articles of association or by a subsequent general assembly decision. According to Article 623 of the TCC, the management and representation of the company are regulated by the company’s articles of association, and the authority to manage and represent can be granted to individuals bearing the title of director. This person can be a shareholder of the company or a third party, but at least one shareholder must have the right to manage and represent the company. In practice, it is common for a major shareholder to serve as a director.
While there is no legal limitation on the term of office for directors, it usually corresponds to the period specified in the company’s articles of association. However, a limited company director or directors can be dismissed before the expiration of their term for various reasons.
The primary authority for the dismissal of directors lies with the general assembly. The decision to dismiss is made by the general assembly and is subject to the majority rules prescribed by the TCC. To make a dismissal decision, the majority specified in the articles of association is required, or if there is no provision in the articles, a decision can be made by the majority of votes present at the meeting, provided that the dismissed director does not cast a vote. However, according to TCC Article 621(1)(g), the approval of at least two-thirds of the represented votes and the entire voting capital is required for the general assembly to approve the directors’ or shareholders’ engagement in activities contrary to loyalty or non-competition clauses.
In addition to the general assembly, any shareholder can request the removal or limitation of the powers of directors if there are “justifiable reasons.” According to TCC Article 630/3, a justifiable reason is considered to exist when the manager significantly violates their duty of care and loyalty, as well as other obligations arising from laws and the company’s articles of association, or loses the necessary ability for the good management of the company.
Considering the wording of TCC Article 630, it can be argued that the legal capacity to file a dismissal lawsuit against a limited company director is granted only to the company’s shareholders. In other words, a director who is not a shareholder of the company does not have the right to make such a request. It is worth noting that there are opinions in legal doctrine suggesting that the lawsuit should be filed against the partnership.
If a limited company director fails to demonstrate the care and loyalty expected of them based on objective criteria, it may result in both personal liability and dismissal from the position. However, for dismissal, a significant violation of the duty of care and loyalty, as well as other obligations arising from laws and the company’s articles of association, must occur “in a severe manner.” Various factors and the judge’s discretion play a crucial role in determining this severity. Examples of justifiable reasons in legal doctrine include not complying with instructions, intentionally providing false information to shareholders, engaging in activities that compete with the partnership, accepting bribes, abusing powers, arrests, and severe illness.
The dismissal of a director can lead to significant changes in the management of the company. The dismissal process must be registered in the commercial registry and announced in the Turkish Trade Registry Gazette. From the registration and announcement of the dismissal, the obligations towards third parties arising from the dismissed director’s actions are lifted.
The dismissal of directors in limited companies can sometimes be unjust or procedurally improper. An unjustified or irregular dismissal of a director may bring legal risks for the company. In such cases, the dismissed director may file a lawsuit for the annulment of the dismissal. However, even if the court is appealed for the annulment, this does not affect the validity of the dismissal of directors in limited companies.
If a director has been appointed for a specific period through the company’s articles of association and is dismissed without a justifiable reason, they can claim damages for the remaining term of the contract and missed opportunities. This damage and loss of opportunities are generally expressed as compensation.
The dismissal of directors in limited companies, within the framework of the TCC, is a significant legal process subject to specific rules and procedures. Ensuring that the dismissal process is in line with the laws and the company’s articles of association is crucial for protecting the rights of both the company and the dismissed director. Since the change in management can be a turning point for companies, every step should be taken carefully.
This article is for general informational purposes and does not substitute for legal advice. It is recommended to consult with a lawyer for specific situations and detailed information.
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