The Turkish Commercial Code1 (the "TCC") retained the provisions of the previous commercial code2 with regard to a company's representation authority. However, among many novelties of the TCC, the practices of trade registries have been changed with regard to the registration criteria of representation authority. With this significant change, most of the companies need to restructure their management and representation organization.
Legal Base
Under Article 370 of the TCC, unless (i) otherwise stipulated in the articles of association, or (ii) the board of directors consists of only one director, a joint stock corporation must be represented by the joint signatures of any two board members3. In this regard, if there is a specific provision in the articles of association of a company, a board of director may assign his representation authorities to any other board member or to third parties. However, under Article 371 of the TCC, the authorities of representatives shall not be limited (e.g. monetary, transaction limits), other than with regard to limitations related to the transactions of headquarter or branch offices. In light of the foregoing, the authorized representatives must have the broadest power to represent and bind the company. Once an authorized representative is registered with the trade registry, the TCC protects third parties acting in good faith who sign any contract with the registered authorized representative of a company.
Previous Practice of Trade Registry Offices
In the past, trade registries would register resolutions with restrictions on authorities including specific groups. Thus, in the signature circular based on such resolution, representatives were generally authorized in these specific groups and their authorities were restricted in terms of monetary or transaction limitations4.
Current Practice of Trade Registry Offices
The Central Registry Record System (the "MERSİS") has been recently adopted by the Ministry of Customs and Trade and the trade registry offices started to implement this system5. The MERSİS is a centrally shared database that stores trade registry records on a regular basis, in an electronic manner and in compliance with the TCC. After adoption of the MERSİS, trade registry offices all over Turkey changed their registration practice of resolutions on representation authority for compatibility reasons. In order for trade registry to register such resolutions, the authorized representatives must have sole or joint signature authority in the broadest manner. Accordingly, a company may not issue a signature circular with different signatory groups, or with monetary or transaction limits. Therefore, directors may no longer have representation authorities with limited powers based on a signature circular.6
The İstanbul Trade Registry has eased up on this practice as a result of severe criticism from the business community and currently allows for the registration of resolutions that create of groups and monetary limitations. However, this practice is not official and may change again. There is speculation that the Ministry of Customs and Trade is working on a circular to establish a common practice for all trade registry offices. Until the issuance of such circular, there will be different practices among different trade registry offices.
Alternative Way to Signature Circular
If a company wishes to appoint other authorized signatories (e.g. sales director, finance director etc.) in order to carry out the company's ordinary course of business, based on the current practice, the only way to overcome the problem is to issue a power of attorney. A signature circular allows the company, as well as third parties, the opportunity to determine the persons authorized to act on behalf of a company. Accordingly, a third party may review trade registry records before executing a contract with a company. However, a power of attorney is not registered with the trade registry, so it does not have the same effect as a signature circular. Further, it is not easy to follow-up on the validity of a power of attorney. Additionally, it is sometimes difficult for a company to revoke a power of attorney or for a third party to determine whether the power of attorney is still valid. In order to avoid these types of problems, companies should consider issuing a power of attorney with a limited term.
Footnotes
1 Law No. 6102 published in the Official Gazette dated 14 February 2011 and numbered 27846.
2 Law No. 6762 published in the Official Gazette dated 9 July 1956 and numbered 9353.
3 Under Article 629 of the TCC, the provisions with regard to representation authority of joint stock corporations shall be applied to limited liability partnerships by way of analogy.
4 Previously, it was possible to appoint representatives to jointly represent the company up to a certain limit, such as TRY 120,000 for banking transactions and/or the company's ordinary course of business.
5 Currently most of the trade registry offices adopted the MERSİS in a limited way except for Gebze Trade Registry. Gebze Trade Registry is the only registr
6 e.g. Under the new trade registry practice, it is no longer possible to assign a human resources manager through a signature circular with specific power to sign employment contracts up to a limit of TRY 100,000.
© Kolcuoğlu Demirkan Attorneys at Law, 2014
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
