As per Article 362 of the Turkish Commercial Code No. 6102 (“TCC”), board members are elected for a maximum term of three (3) years. The term of office of board members may be determined freely in the articles of association of the company, or if not determined therein, at the general assembly meeting, in accordance with this basic principle.
Article 362 of the TCC sets forth the maximum length of time that board members can serve in any given election period, rather than setting an overall time limit on their terms as board members. In other words, shareholders can, once again, re-elect the same board member(s) at the end of their term(s) of office, for a further maximum term of three (3) years.
However, it should be noted there is no provision with respect to the authorities and responsibilities, if any, of board members following the expiration of their terms of office. Article 410 of the TCC regulates that the general assembly may be invited for a meeting by the board of directors even if its term has expired. However, this article relates only to an invitation of the general assembly to convene. There are differing views among legal experts with respect to Turkish legal doctrine regarding the status of board members whose terms of office have expired. Some commentators argue that, when the term of office of a board member expires, his/her board membership terminates automatically and that he/she no longer has any authority or responsibility regarding his/her board membership. On the other hand, other commentators have stated that, although one’s membership of the board of directors terminates automatically when the term of office of a board member expires, such board members are nevertheless obliged to carry out necessary and urgent works (e.g., making tax payments, paying rent(s) and employees’ insurance premiums, etc.), required for the company’s survival and the continuation of its business operations.
It should be noted that the decisions of the Supreme Court on this subject have also been controversial. Ultimately, the Supreme Court ruled in 2014 that, since there is no specific provision stipulating that membership of the board members will terminate automatically at the end of their terms of office; former board members must continue to carry out their duties in extraordinary and urgent cases, until new board members can be elected to replace them. Therefore, it could not be argued that a company lacks a duly authorized executive body solely due to the expiration of the term of office of some of its board members.
The Supreme Court decision mentioned above appears to provide an alternative pathway for companies that are unable to complete their general assembly meeting procedures in time, as well as for shareholders who are temporarily unable to agree on or select new board members. However, in practice (and particularly for transactions with third parties, as opposed to the internal decisions of the board of directors), we observe that the expiration of the terms of office of the board members of a company may lead public authorities to refuse to recognize the resolutions or signature circulars of that company.
(First published by Mondaq on December 3, 2018).