Liability for Damages of Board Members in Joint Stock Companies

1. Introduction

Joint-stock companies are the most important type of capital company regulated in the Turkish Commercial Code. The management and representation of the company the board of directors . Board members bear significant responsibilities commensurate with their authority.

Wrong decisions, breaches of duty, or illegal actions can harm not only the company but also shareholders and third parties. This is where the liability of board members for damages comes into play.

⚖️ Supreme Court 11th Civil Chamber, Case No. 2016/4321, Decision No. 2017/8765.

"Board members are personally liable with their own assets if they cause damage to the company through their negligent conduct."

2. Legal Framework

2.1. Turkish Commercial Code

Turkish Commercial Code Article 365: The duties of management and representation belong to the board of directors.
Turkish Commercial Code Article 369: Management in accordance with the principle of honesty.
Turkish Commercial Code Article 375: Non-transferable powers of the board of directors.
Turkish Commercial Code Article 553: Board members are liable for damages caused by their negligence.
Turkish Commercial Code Article 555: Shareholders' right to file a liability lawsuit.

2.2. Law of Obligations

Turkish Code of Obligations, Article 49: Tort Liability.
Turkish Code of Obligations, Article 66: Employer's responsibility.

2.3. Relationship with Criminal Law

Crimes such as abuse of office, breach of trust, and tax evasion also give rise to liability for damages.

3. Types of Responsibilities of Board Members

3.1. Liability to the Company

A board member is liable if they neglect their duties, make wrong investments, or fail to pay taxes and social security contributions, thereby causing damage to the company.

⚖️ Supreme Court 11th Civil Chamber, Case No. 2017/3456, Decision No. 2018/5432.

"Board members who failed to pay their tax debts have been held personally liable for the damage they caused to the company."

3.2. Liability to Shareholders

False reporting, improper profit distribution, transactions that diminish company value.

⚖️ Supreme Court 11th Civil Chamber, Case No. 2015/9876, Decision No. 2016/2345.

"Board members who prepare misleading financial statements are liable to shareholders."

3.3. Liability to Company Creditors

Members who cause the company to become insolvent or drive it to bankruptcy through mismanagement are also liable to creditors.

⚖️ Supreme Court 11th Civil Chamber, Case No. 2018/6543, Decision No. 2019/7654.

"Board members who drove the company into bankruptcy through poor financial decisions have been held liable to creditors for damages."

3.4. Responsibility to the Public

Violation of capital market regulations,
Competition violations,
Damage to the environment.

4. Terms of Liability

Breach of duty or fault,
The occurrence of damage,
Causal link,
The faulty conduct is unlawful.

⚖️ Supreme Court Grand Chamber, Case No. 2014/11-234, Decision No. 2015/567.

"For a board member to be held liable, there must be an appropriate causal link between the negligent conduct and the resulting damage."

5. Compensation Claims

5.1. Lawsuits the Company May File

The company can sue the board members directly for the damages it has suffered.

5.2. Lawsuits to be Filed by Shareholders

Article 555 of the Turkish Commercial Code , each shareholder can file a liability lawsuit on behalf of the company.

5.3. Lawsuits to be Filed by Creditors

If the company goes bankrupt, creditors can file a lawsuit directly.

⚖️ Supreme Court 11th Civil Chamber, Case No. 2019/2345, Decision No. 2020/4321.

"Creditors of a bankrupt company can file a direct compensation claim against the negligent board members."

6. Examples from Supreme Court Decisions

6.1. Tax and Social Security Debts

⚖️ Supreme Court 11th Civil Chamber, Case No. 2016/9876, Decision No. 2017/5432.

"Board members are held personally liable for the non-payment of tax debts."

6.2. Irregular Profit Distribution

⚖️ Supreme Court 11th Civil Chamber, Case No. 2015/4321, Decision No. 2016/7654.

"Board members who distribute profits unfairly are held liable to shareholders."

6.3. Wrong Financial Decisions

⚖️ Supreme Court 11th Civil Chamber, Case No. 2018/6543, Decision No. 2019/7654.

"Board members who caused the company to become insolvent are liable to creditors."

6.4. Capital Market Violation

⚖️ Supreme Court 11th Civil Chamber, Case No. 2017/8765, Decision No. 2018/2345.

"Board members who misled investors with false information are held accountable under the Capital Markets Board regulations."

7. Compensation Calculation

Damage to the company: based on financial loss,
Loss to shareholders: decrease in share value,
Harm to creditors: non-payment of debt,
Moral damage: if there is a violation of personal rights.

8. Statute of Limitations

Turkish Commercial Code Article 560: 2 years (study), 5 years (in any case).
The statute of limitations is longer for acts falling under criminal law.

9. Comparative Law

Germany (AktG): Board members are held accountable with "business diligence".
England (Companies Act 2006): Directors' duties → “duty of care and loyalty.”
USA: Liability for compensation under "fiduciary duty".
ECHR: Public responsibility is linked to violations of rights and freedoms by company executives.

10. Frequently Asked Questions (FAQ)

1. Are board members personally liable?
→ Yes.

2. Are they responsible for the company's tax debts?
→ Yes.

3. Can shareholders file a lawsuit?
→ Yes, under Article 555 of the Turkish Commercial Code.

4. Can creditors file a lawsuit?
→ Yes, in case of bankruptcy.

5. Can compensation for moral damages be claimed?
→ Yes, if there is a violation of personal rights.

6. What is the statute of limitations?
→ 2 years, probably 5 years.

7. What is the Supreme Court's approach?
→ Board of directors' liability is interpreted broadly in favor of the victim.

8. What liability arises from decisions that lead to the company's bankruptcy?
→ Liability to creditors.

9. What are some examples of public accountability?
→ Capital Markets Board (SPK), competition law, environmental violations.

10. What does "organ responsibility" mean?
→ The actions of the board of directors directly bind the company.

11. Conclusion

In joint-stock companies, board members are obligated to adhere to principles of honesty, loyalty, and diligence in the performance of their duties. Failure to do so will result in liability for material and moral damages to the company, shareholders, creditors, and the public .

⚖️ Supreme Court rulings broaden the scope of board members' liability, particularly in areas such as tax, social security, bankruptcy, and irregular profit distribution.

Single Blog Title