Expert Istanbul Lawyer for Removal and Limitation of Directors' Authority in Limited Companies

Removal and Limitation of Directors' Authority in Limited Companies by Court Order

In limited companies, management and representation authority belong to the directors (TCC Article 623/1). Directors can be chosen from among the company partners or from outside. Under the previous Turkish Commercial Code, there was a distinction between directors who were partners and those who were not, regarding the removal of their authority. For partner directors, the removal was regulated by the provisions for collective companies, while non-partner directors could be dismissed by a general assembly decision​​.

Removal and Limitation of Directors' Authority in Limited Companies by Court Order

Removal and Limitation of Directors' Authority Article 630/2 of the Turkish Commercial Code grants each partner the right to request the court to remove or limit the management and representation authority of directors in the presence of justified reasons. This article also applies to the dismissal of directors and is frequently used for this purpose in practice​​.

General Overview If justified reasons exist, it is possible to apply to the court to remove the authority of directors. The purpose of this provision is to maintain the functionality and continuity of the company. Therefore, the company's interest is paramount, rather than individual interests​​.

Removal and Limitation of Directors' Authority in Limited Companies by Court Order

Purpose of the Provision The purpose of Article 630/2 of the Turkish Commercial Code is to maintain the functionality and continuity of the company. This provision is not designed to protect the individual interests of directors or partners; rather, the company’s interest is decisive. In lawsuits for the justified removal of directors, factors such as the company’s situation, business scope, and relationships among partners are considered​​.

Conditions If justified reasons exist, it is possible to apply to the court to remove the authority of directors. The concept of justified reason is crucial for protecting the company’s interests. Examples of justified reasons include severe breaches of duties or loss of the ability necessary for the proper management of the company​​.

Removal and Limitation of Directors' Authority in Limited Companies by Court Order

Impact of the Court's Decision on Directors' Compensation Rights According to Article 630/4 of the Turkish Commercial Code, the compensation rights of a director dismissed by the court are preserved. This provision indicates that the dismissal of a director affects the organ relationship, not the contractual relationship. Therefore, the existence of justified reasons does not nullify the director's right to compensation. However, it should be examined whether the justified reason arose due to the director's fault​​.

Court's Decision The court's decision to remove the directorship or limit the director's authority is a constitutive decision. This decision is effective in internal relations on the date the judgment becomes final and binding, and in external relations, it becomes effective upon registration and announcement to third parties in good faith. The court’s dismissal of the case results in a declaratory outcome​​.

Removal and Limitation of Directors' Authority in Limited Companies by Court Order

Conclusion This study examines the situation of removing and limiting the management and representation authority of directors in limited companies by court order. According to Article 630/2 of the Turkish Commercial Code, each partner can request the court to remove or limit the management and representation authority of directors in the presence of justified reasons. The purpose of this provision is to maintain the functionality and continuity of the company. Additionally, if justified reasons exist, directors can be removed or their authority can be limited. The compensation rights of the dismissed director are preserved​​.

Further Considerations: Role of the Court and Legal Proceedings

Role of the Court The court plays a crucial role in determining whether the reasons presented for the removal or limitation of a director's authority are justified. This involves a thorough examination of the circumstances and evidence provided by the parties involved. It is important for the court to ensure that the company's interests are protected while also considering the rights of the director.

Legal Proceedings Partners seeking to remove or limit a director's authority must file a lawsuit in the appropriate court. The court will then assess the validity of the claims and the existence of justified reasons. During this process, it is beneficial for the partners to seek guidance from experienced legal professionals, such as an Istanbul Lawyer or an Istanbul Company Lawyer, who can provide expert advice and representation.

Implications for Directors Directors facing the possibility of removal or limitation of their authority should be aware of their rights and the potential outcomes of the legal proceedings. They should also be prepared to present a strong defense if they believe that the claims against them are unfounded. Consulting with a knowledgeable lawyer can help directors navigate the complexities of the legal process and protect their interests.

Ensuring Compliance with Legal Standards Both partners and directors must ensure that their actions comply with the relevant legal standards and provisions set forth in the Turkish Commercial Code. This includes understanding the specific requirements for justified reasons and the procedures for filing and defending against a lawsuit.

Final Thoughts The removal and limitation of directors' authority in limited companies by court order is a significant legal process that requires careful consideration of the company's interests and the rights of the directors. By understanding the legal framework and seeking appropriate legal counsel, parties involved can navigate this process effectively and ensure that their actions are in line with the law.

For more information and expert legal assistance, consider consulting with an Istanbul Lawyer or an Istanbul Company Lawyer who specializes in commercial law and corporate governance.