DAMAGE TO THE COMPANY CAUSED BY AN AUTHORIZED DIRECTOR IN A LIMITED LIABILITY COMPANY AND ITS CONSEQUENCES 12 October 2023

WHAT ARE THE BODIES OF A LIMITED LIABILITY COMPANY?

Limited liability companies have two mandatory bodies: the General Assembly and the Board of Managers. According to Article 623 of the Turkish Commercial Code No. 6102 ("TCC"), managers are authorized to make decisions on all matters related to management that are not reserved by law or the company's articles of association for the general assembly and to execute these decisions.

Managers are the management and representation body of the company. This management and representation are regulated by the company's articles of association, and the title of manager can be granted to one or more partners, all partners, or third parties. While Article 625 of the TCC regulates the non-transferable and irrevocable duties of managers, Article 629 contains provisions regarding the scope and limitation of their representation authority.

The General Assembly, on the other hand, is the decision-making body of the company and is competent and authorized in matters explicitly designated by law or the articles of association, in accordance with Article 623/3 of the TCC. In this regard, Article 616 of the TCC regulates the non-transferable powers of the general assembly.

HOW IS THE MANAGER TITLE ACQUIRED?

Under TCC Article 576/1-d, which regulates the mandatory provisions that must be included in the company's articles of association, during the establishment of the company, one or more of the partners or third parties who are not partners can be appointed as managers through the company's articles of association. However, in addition to this legal requirement during the establishment, according to TCC Article 616/1-b, the appointment of manager(s) by the general assembly is among the non-transferable authorities of the general assembly. In other words, acquiring the title of manager is realized through the articles of association during the company's establishment, and after the establishment, it is realized through a decision of the general assembly.

One important point to note is that the person who will hold the title of manager in the limited company does not need to be a partner in that company. However, according to TCC Article 623/1, at least one partner must have the right to manage and represent the company.

If there are multiple managers, a chairman is selected, and decisions are made by a majority vote. In case of a tie, the chairman's vote takes precedence.

WHAT ARE THE DUTIES AND AUTHORITIES OF THE MANAGER?

The duties and authorities of the manager or board of managers are specified as non-delegable in TCC Article 625. However, the scope of these duties and authorities is not limited to this article. This is because, in accordance with TCC Article 623/3, the manager or board of managers is authorized to make decisions and execute them on all matters related to management that have not been delegated to the general assembly by the company's articles of association or by law.

WHAT ARE THE RESPONSIBILITIES OF THE MANAGER?

The manager of a limited company impacts the rights and interests of the company, shareholders, and company creditors through the transactions carried out on behalf of the company.

Managers have specific legal responsibilities explicitly outlined in the law, including supervision and oversight, treating shareholders equally (TCC Article 627), refraining from competing with the company, fulfilling the duty of care and loyalty (TCC Article 626), and not engaging in transactions with the company. In addition to these legal obligations, further responsibilities may be determined by the company's articles of association.

If obligations arising from the law or the company's articles of association are violated, resulting in harm to the company, the managers will be legally liable.

WHAT CAN BE DONE IF A MANAGER CAUSES DAMAGE TO THE COMPANY?

TCC Article 644/1-a regulates the liability of board members of joint-stock companies, and TCC Article 553, which deals with the liability of board members, can be analogously applied to managers of limited liability companies. Based on this article, a liability lawsuit can be filed against the manager(s) by the company, shareholders, or creditors if the manager(s) cause harm to the company.

The following conditions must be met for a liability lawsuit against the manager(s):

• • Violation of obligations arising from the law or the company's articles of association,
  • The violation resulting from the manager(s) negligent act,
  • The occurrence of harm,
  • The presence of a proper causal relationship between the violation and the harm.