Invalidity of Board of Directors’ Decisions in Joint Stock Companies

The corporation in which the principle of limited liability is adopted in the broadest sense within the framework of the systematic of the Turkish Commercial Code (TCC), Law No 6102 is a the joint stock company. While the regulations on joint stock companies are basically included in Articles 329 to 562 of the TCC, there are other mandatory rules regarding joint stock companies in various laws, especially in the Capital Markets Law No. 6362 (SerPK). In addition, it should be kept in mind that some of the provisions regarding joint stock companies will also apply to limited liability companies.

In joint stock companies, the management and representation body is the board of directors. The board of directors, which is one of the legally obligatory organs in joint stock companies, consists of one or more persons appointed by the articles of association or elected by the general assembly. The board of directors may consist of only one person, but this does not affect the nature of the board of directors as a ‘board’. Pursuant to article 374 of the TCC, the board of directors is authorized to take decisions on all kinds of business and transactions necessary for the realization of the company’s business, except those left under the authority of the general assembly in accordance with the law and the articles of association. As can be seen, the board of directors of joint stock companies has a wide authority in terms of managing the company. This situation is partly due to necessity, because the operation of the general assembly is heavy, the need to take quick decisions together with economic realities in business life brings the board of directors to the fore.

As the other side of the coin, the necessity of auditing the decisions of the board of directors emerges. Indeed, the need for legal supervision arises when the board of directors, which acts as a proxy, must manage the assets belonging to others, protect their interests and act in accordance with the law. Although there was a limited opportunity to apply against the decisions of the board of directors at the time of the former Commercial Code (eTK), supervision was ensured through the discussion of the decisions of the board of directors in the general assembly and the invalidity of the general assembly resolutions. With the TCC, the nullity of the decisions of the board of directors through the court has been clearly regulated. However, considering the general provisions including TCC article 447 and TCO regarding the nullity of general assembly resolutions, it can be stated that the invalidity types of the joint stock company’s board of directors’ resolutions is non-existence, nullity and annulment.

In the case of “non-existence”, one of the mandatory elements stipulated by the law for the decisions of the board of directors does not exist. For this, first of all, the board of directors must be established in accordance with the law and in a valid manner. In other words, the decisions taken by the board of directors that have not been formed in a legally valid manner will be null and void. In addition, failure of the board of directors to take a decision in accordance with the mandatory procedures specified in the law will be grounds for non-existence.

The nullity of the decisions of the board of directors is regulated by way of example in article 391 of the TCC. According to the provision;

It may be requested from the court to determine that the decision of the board of directors is null and void. Especially; decisions that

1. a) are contrary to the principle of equal treatment,
2. b) does not comply with the basic structure of the joint stock company or does not observe the principle of protecting the capital,
3. c) are violating the inalienable rights of the shareholders or restricting or making it difficult to exercise them,
4. d) regarding the transfer of powers, which fall under the non-transferable powers of other bodies,

are null and void.

Apart from this, according to article 27 of the TCO, which is a general provision, the decisions of the board of directors may be invalidated.

Finally, it is possible to file a lawsuit for the annulment of the decisions of the board of directors, but this is only possible in joint stock companies subject to the registered capital system. The grounds for the action for annulment are the provision of Article 460/5 of the TCC and the provision of Article 18 of the SerPK. Therefore, shareholders and members of the board of directors may file an action for annulment at the commercial court of first instance in the place where the headquarters of the company is located, against the decisions of the board of directors, which are contrary to the provisions of the law or the articles of association and especially the rule of good faith. Members of the board of directors or shareholders whose rights have been violated can file an action for annulment within thirty days from the announcement of the decision, against the decisions of the board of directors taken in violation of the mandatory provisions listed in Article 18 of the SerPK.

Please contact our office to get legal support in all judicial processes regarding the invalidity of the decisions of the board of directors of a joint stock company.