The Use and Limits of Representation Authority in Joint Stock Companies

Exercise of Representation Authority

The representation of joint-stock companies in external relations is generally entrusted to the board of directors. Joint-stock companies are merchants, and according to Article 39/1 of the Turkish Commercial Code (TTK), merchants must conduct transactions related to their commercial enterprises under their trade name and sign their names under this name. The company's "signature" refers to the signature of its representatives, and the power of representation is exercised by the signatures of authorized persons under the company's trade name. This principle is also emphasized in Article 372/2 of the TTK.

Generally, a joint signature of two authorized representatives on behalf of the company is required (double signature). However, Article 370 of the Turkish Commercial Code provides two exceptions to this rule. Firstly, if the company's articles of association stipulate a different arrangement instead of double signature. Secondly, if the board of directors consists of a single member.

Generally, the authority to represent the company by signing under the company's name is determined by the board of directors. The board of directors also determines whether the authorized signatories can represent the company individually or jointly.

According to Article 371/7 of the Turkish Commercial Code (TTK), the board of directors may appoint other board members who are not authorized to represent the company, or those bound to the company by a service contract, as commercial agents or other business assistants with limited authority. The duties and powers of these individuals must be clearly stated in the internal regulations prepared in accordance with Article 367 of the TTK and registered in the commercial registry. The internal regulations mentioned in Article 371/7 of the TTK do not constitute grounds for appointing commercial agents and other business assistants; here, the terms "commercial agent" and "other business assistants" as defined in the Turkish Code of Obligations No. 6098 are intended. Commercial agents and other business assistants with limited authority must also be registered in the commercial registry, and the board of directors shall be jointly and severally liable for any damages they cause to the company or third parties.

Article 373 of the Turkish Commercial Code requires the board of directors to register and announce the persons authorized to represent the company and the manner of representation in the commercial registry.

Limits of Representation Authority

Except for the exceptions specified in the law, the power of representation of signatories cannot, as a rule, be restricted. This regulation aims to protect third parties who conduct transactions with the company. Restrictions on the power of representation do not bind bona fide persons who conduct transactions with the company, even if these restrictions are registered in the commercial registry. Such restrictions apply only to those who are aware of the limitation on the power of representation.

The Turkish Commercial Code (TTK), with the exception of Article 371/7, introduces two exceptions to the principle of not restricting the power of representation, as was the case in the repealed law. Accordingly, the power of representation of signatories can be restricted only to the business areas of the company's headquarters or branches, or by the double signature rule. For example, signatories can be divided into two groups, and the joint signature of two different signatories may be required for each group.

Article 125/2 of the Turkish Commercial Code (TTK) stipulates that transactions outside the purpose and business scope of a joint-stock company are also binding on the company. According to this provision, unless it is proven that third parties conducting transactions with the company knew or could have known that the transaction was outside the company's business scope, such transactions are binding on the company. Therefore, the ultra vi principle, which was included in the repealed Article 137 of the TTK and which stipulated that transactions outside the company's business scope were invalid, was abandoned with the publication of the new TTK in the Official Gazette on February 14, 2011.

A similar situation applies to transactions that are contrary to the articles of association or general assembly resolutions. In this case, bona fide third parties may contact the company regarding a transaction, even if that transaction is contrary to the articles of association or general assembly resolution.

In joint-stock companies, the power of representation belongs to the board of directors. The board of directors registers and announces the persons authorized to represent the company, determines the form of representation, and may delegate the power of representation if necessary. However, in all cases, it is mandatory for at least one member of the board of directors to have the power of representation.

The Turkish Commercial Code has abandoned the ultra vires principle; therefore, as a rule, all transactions carried out by authorized signatories are binding on the company, even if they are outside the company's scope of business.

The appointment and dismissal of signatories are inalienable and non-transferable powers of the board of directors. However, it is important to assess whether all signatories fall within the scope of these powers. There is debate as to whether it is mandatory for the board of directors to appoint all signatories authorized for specific tasks, excluding senior signatories. This obligation will be shaped by doctrine and case law, and a narrow interpretation may be possible for practical reasons.