• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren

REQUIREMENT OF INTERNAL DIRECTIVE IN LIMITATION OF REPRESENTATION AUTHORITIES

Summary

In relation to the authorities to represent and bind legal entities, the TCC Law No: 6102 which is entered into force on 2012 states that unless otherwise stipulated in the articles of association, the representation powers shall belong to the board of directors to be exercised by two joint signatures and that the limitations on the representation authorities shall not be binding on bona fide third parties until the registration and announcement of such limitations with the trade registry. The board of directors may transfer its representation authorities to one or more members of the board of directors or third party managers; however the limitations which shall be binding on bone fide third parties are restricted to prescribing signatory authorities for headquarters or braches of such company or to imposing joint signature requirements.

Furthermore, a new amendment of the TCC is made, with the law numbered 6552 published in the Official Gazette dated 11.10.2014 and numbered 29116 and a new paragraph is added to Article 371 of the TCC which indicates that Board of Directors may, apart from the above mentioned representatives, appoint members of the board of directors who do not have representation authorities or persons who are employed by the company as commercial representatives with limited authority, the duties and authorities of whom shall be determined, under an internal directive of board of directors which should be registered and published (“New Amendment”).

Changes

With the entry into force of the TCC, the trade registry offices, which are the official authorities responsible for keeping the records of the registrations, started to strictly implement the new regulation, specially following the launch of a new electronic centralized registration system (“Mersis”) and the trade registry offices in various cities across Turkey started to refuse to register any resolution of the management body of companies for the issuance of signature circulars which deviate from the above state rule regarding limitations being allowed only for distinction between headquarters and braches or for imposing joint signature requirements. Furthermore, Mersis currently only accepted the limitation of representation authority under the signature circulars either as “sole” or “joint”.

This change in the practice of the trade registry offices and registration system was sufficiently significant to cause a change in the entire practice implemented by most of the companies, where in the past, the companies used to issue signature circulars (which are the documents that include the scope of authorities and signature specimens of the authorized signatories) by grouping persons holding signature authorities based on different categories, thresholds or criteria such as the type of transactions (e.g. banking transactions, daily business operations, transactions with or monetary thresholds and bestowing other officers with limited authorities).

To avoid all the complications in practice and serve for the requirements of the companies, with New Amendment, the board of directors of companies are given the right to appoint members of the board of directors who do not have representation authorities or persons who are employed by the company as commercial representatives with limited authority, the duties and authorities of whom shall be determined under an internal directive of board of directors to be prepared as per Article 367.

With this regard, for those companies which wish to appoint representatives by grouping persons holding signature authorities based on different categories, thresholds or criteria such as the type of transactions (e.g. banking transactions, daily business operations, transactions with or monetary thresholds and bestowing other officers with limited authorities), along with issuance a signature circular which will authorize one or more members of the board of directors or third party managers in the broadest manner, should also issue internal directives. For this purpose it is required for such companies to;

(i) amend their articles of association to indicate that the board of directors can delegate authorities, and have their Board of Directors (or their general assembly of shareholders in case of limited companies) decide on issuing internal directive.

(ii) prepare and have registered and published an internal directive of board of directors under which the group of signatures and limitation of authorities should be determined without making any reference to the names of the signatories.

(iii) have their board of directors (or their general assembly of shareholders in limited companies) take a separate decision determining the persons having signature authorities by making reference to the registered internal directive of board of directors.

Board of Directors shall be responsible for the loss of the company and third parties that may rise from the transactions of the representatives, so appointed.

Conclusion

While the companies are only required to register their members of the board of directors or other managers as the signatories authorized to represent and bind the company in the broadest manner, either with their sole or joint signatures, the companies that wish to limit the representation and binding authorities by grouping persons holding signature authorities based on different categories, thresholds or criteria such as the type of transactions (e.g. banking transactions, daily business operations, transactions with or monetary thresholds and bestowing other officers with limited authorities) should also issue internal directives.

Other Articles