Being Responsible for Personal Assets of the Shareholder from Corporate Debts by the Method of Lifting the Corporate Veil 26 December 2017

Legal entity means being a party of legal proceedings as an independent entity from the shareholders of the equity companies and being liable for the transactions independently from shareholders. The legal entity of the company is liable from the contracts and transactions for which the company is a party, not the shareholders. The shareholders are only liable toward the legal entity for their participation rate in the capital. This situation creates a limited liability of the shareholders.

Due to the limited liability of the shareholders, legal entity of the company is liable toward the third parties in principle. For this reason; the characteristic of legal entity which is limitation of relationship between the third parties and the shareholders is called the corporate veil in the doctrine. By means of the corporate veil, shareholders are only liable to third parties in proportion to their share of capital. However; in some cases this protection of the legal entity over the shareholders may result inequitable consequences. Particularly in cases of fraud against law within the context of Article 2 of the Turkish Civil Code, the corporate veil can be lifted and shareholders become liable with their personal assets. The cases where the corporate veil can be lifted can be considered in three sections;

1. Lack of Shareholders Equity

As a reason of protection of creditors principle, shareholders in equity companies have the obligation to allocate a certain amount of principal capital to the company. The principal capital amount should be calculated by taking into consideration the activities of the company and the risks that may arise from these activities. In other words, the determined principal capital must cover the risks that may arise from the commercial activities of the company. In this regard, if a company, which has insufficient principal capital, engages in legal transactions with third parties before the compensation of the insufficiency; it may possible for the court to decide to lift the corporate veil and held liable the shareholders.  

2. Intermingling of the Assets of the Legal Entity and the Shareholders

It can be given as an example of the intermingling of the assets of legal entity and the shareholders that if a company is a shareholder of another company, the company who owns the shares may be entitled to use an asset component in the other company’s activities without being recorded. In practice, it is often seen that the courts have decided to lift the corporate veil and to hold the shareholders responsible in cases where the assets has intermingled with each other.

3. Lifting the Corporate Veil in Companies with a Controlling Shareholder

In equity companies, the shareholder or shareholders who own the majority of the principal capital are called the controlling shareholder of the company. In order to hold the controlling shareholder liable by lifting the corporation veil, it is necessary for the controlling shareholder or shareholders to harm the creditors of the company by abusing their control over the company.

There are three types of lifting the corporate veil;

1. Lifting the Corporate Veil “Directly”

The abovementioned explanations are related to the flat lifting the corporate veil which is the most typical example of lifting the corporate veil. It means the extension the scope of liability of legal entity to cover shareholders; in other words, a debt of the legal entity is paid from personal assets of the shareholders.

2. Lifting the Corporate Veil in “Reverse”

It means the extension the scope of the liability of shareholders to cover legal entity. As is known, if a debt of a shareholder is not paid, his/her share in the company can be seized. It will then be possible to sell the seized share. In this case, the debt is indirectly paid from the assets of the legal entity. With lifting the corporate veil in “reverse”, it will be given an opportunity to the creditor of the shareholder to claim his credit from the assets of the company.

3. Lifting the Corporate Veil in “Cross”

It is a method especially applied for group companies; and it means the extension of liability among the subsidiary companies of a parent company. In this type; a debt owed by subsidiary partnership is paid from assets of another subsidiary company of the same parent company by lifting the corporate veil “directly” firstly by extending the liability of subsidiary company to his parent company, and lifting the corporate in “reverse” secondly by extending the liability of the parent company to another subsidiary company.

Despite the fact that the Theory of Lifting the Corporate Veil is not regulated under the legislation of our country, it is frequently applied by the courts in practice. The said theory is an establishment which is developed and applied in practice by the case law as in the decision of the 19^th Civil Chamber of the Supreme Court dated 24.3.2015 and numbered 2014/7187 E. 2015/4144 K. The Supreme Court has admitted that in case of harming the creditors and determining the existence of the fraud, it can be bring an exception to the limited liability of the shareholders by lifting the corporate veil.

Within this scope, in order not being confronted with a liability which may arise as a consequence of lifting the corporate veil in the context of commercial law, it is important to act with the consciousness that the assets of the company are separate from the assets of the shareholders and it is important to obtain support from expert lawyers in their field before the commercial and legal transactions to be made.

Türkçe Versiyonu İçin

http://www.kasaroglu.av.tr/tr/tuzel-kisilik-perdesinin-kaldirilmasi