Introduction
Serving as a director in a Turkish company—particularly in a joint stock company (A.Ş.) or limited liability company (Ltd.)—carries significant legal responsibility. Turkish law imposes strict fiduciary duties and compliance obligations on directors, and failure to fulfill these duties may result in civil compensation claims, criminal prosecution, administrative fines, and tax liability.
For foreign investors appointing board members in Turkish subsidiaries, understanding director’s liability in Turkish companies is critical. Unlike some jurisdictions where liability exposure is relatively limited, Turkish law provides broad grounds for personal accountability.
This article provides a comprehensive overview of directors’ civil, criminal, and tax liabilities, enforcement mechanisms, and practical risk mitigation tools.
1. Legal Framework
Director’s liability in Turkish companies is primarily regulated under:
- Turkish Commercial Code (TCC) No. 6102
- Turkish Code of Obligations
- Turkish Penal Code
- Tax Procedure Law
- Enforcement and Bankruptcy Law
- Social Security Law
Public companies are also subject to Capital Markets Law.
2. Fiduciary Duties of Directors
Under the TCC, directors owe:
1️⃣ Duty of Care
Directors must act as a prudent manager would under similar circumstances.
2️⃣ Duty of Loyalty
Directors must prioritize company interests over personal interests.
3️⃣ Confidentiality Obligation
Directors must protect trade secrets and confidential information.
These duties form the basis of civil liability.
3. Civil Liability of Directors
Directors may be personally liable if they:
- Violate law or articles of association
- Cause damage to the company
- Act negligently
- Abuse authority
Liability may arise toward:
- The company
- Shareholders
- Creditors (in certain circumstances)
4. Conditions for Civil Liability
Four elements must exist:
- Unlawful act
- Fault (intent or negligence)
- Damage
- Causal link
If proven, directors may be required to compensate damages personally.
5. Joint and Several Liability
Board members are generally jointly and severally liable.
However, a director may avoid liability by proving:
- They were not at fault
- They opposed the decision
- They fulfilled their duty of care
Proper documentation of dissent is critical.
6. Liability Toward Creditors
In insolvency cases:
- Directors may be liable if they delay bankruptcy filing.
- Mismanagement leading to asset depletion may trigger claims.
Creditors may directly pursue directors in certain situations.
7. Criminal Liability
Director’s liability in Turkish companies extends beyond civil law.
Criminal exposure may arise from:
- Fraud
- Abuse of trust
- Tax evasion
- False accounting
- Insider trading (public companies)
- Market manipulation
Convictions may lead to imprisonment and fines.
8. Bankruptcy and Fraudulent Acts
Directors may face criminal charges for:
- Concealing assets
- Artificially reducing company value
- Fraudulent bankruptcy
Intentional misconduct significantly increases criminal risk.
9. Tax Liability
Under Turkish Tax Procedure Law:
If tax debts cannot be collected from the company:
- Legal representatives may be held personally liable.
This includes:
- Corporate tax
- VAT
- Withholding taxes
Tax authority may pursue directors directly.
10. Social Security Liability
Directors may also face personal liability for:
- Unpaid social security premiums
Social Security Institution may enforce payment against directors if company assets are insufficient.
11. Liability in Limited Liability Companies (Ltd.)
In limited companies:
- Managers are liable similarly to directors of joint stock companies.
- Shareholders may also bear certain secondary liability for public debts.
Ltd. structures may carry greater personal exposure.
12. Capital Loss and Insolvency Obligations
Under TCC Article 376:
If capital loss reaches certain thresholds:
- Board must call general assembly.
- Board must take remedial measures.
Failure to act may trigger liability.
13. Directors’ Liability in Public Companies
Public company directors face additional exposure:
- Disclosure violations
- Insider trading
- Market abuse
- CMB administrative fines
Capital Markets Board actively supervises compliance.
14. Business Judgment Rule
Turkish courts recognize a limited form of business judgment rule.
If directors:
- Act in good faith
- Make informed decisions
- Do not have conflict of interest
Courts may defer to managerial discretion.
However, protection is not absolute.
15. Limitation Period
Civil liability claims against directors are subject to:
- Two-year limitation from discovery
- Five-year maximum period
Criminal liability limitation depends on offense.
16. Risk Mitigation Strategies
To reduce exposure, directors should:
- Maintain detailed board minutes
- Document dissenting opinions
- Ensure compliance systems
- Seek professional advice
- Avoid conflicts of interest
Proactive governance reduces liability risk.
17. Directors and Officers (D&O) Insurance
Many companies obtain:
- D&O liability insurance
This insurance may cover:
- Defense costs
- Compensation payments
However, intentional misconduct is typically excluded.
18. Foreign Directors in Turkish Companies
Foreign nationals serving as directors:
- Are subject to Turkish jurisdiction.
- May face cross-border enforcement issues.
Physical presence in Turkey is not required for liability.
19. Practical High-Risk Areas
Common risk areas include:
- Tax compliance failures
- Improper dividend distribution
- Failure to file bankruptcy
- Unauthorized transactions
- Non-compliance with capital requirements
Directors must actively monitor financial health.
20. Removal and Resignation
Directors may resign at any time.
However:
- Resignation does not remove liability for prior acts.
- Failure to register resignation may create continuing risk.
Proper procedural compliance is essential.
Conclusion
Director’s liability in Turkish companies is broad and multi-layered, encompassing civil, criminal, and tax exposure. Turkish law imposes strict fiduciary duties and holds directors personally accountable for negligence, misconduct, and compliance failures.
For foreign investors and multinational corporations, careful board selection, robust internal controls, proper documentation, and D&O insurance are essential tools for risk management.
Understanding liability exposure is not merely a legal necessity—it is a fundamental aspect of corporate governance and sustainable business operation in Turkey.
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