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Co-option: Appointment of the Member by the Board of Directors Itself

Co-option: Appointment of the Member by the Board of Directors Itself

Turkey
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The Turkish Commercial Code No. 6102 [the “TCC”] designates the Board of Directors [the “Board”] as one of the two compulsory executive bodies of the joint stock corporations (in Turkish: anonim şirket) – the other one is the general assembly of shareholders [the “GA”]. Accordingly, the Board is entitled to take all necessary decisions in order to carry out all business and transactions required to perform the company’s scope of activity excluding those falling within the exclusive authority of the GA stipulated by law and the articles of association [the “AoA”] of the company. That is to say, the Board is designated as the main competent body of a joint stock corporation under Turkish law. 

Composition and Appointment of the Board

The Board can be composed of one (1) or more members. It is also possible to determine the number of the Board members on a flexible basis. For instance, the AoA may state that the Board consists of 4 to 7 members; in that case, the shareholders will determine the exact number of the members at the GA meeting. The TCC also enables the legal entities (whether Turkish or foreign) to be appointed as the Board members.

The Board members are elected for a maximum term of three (3) years. Their term of office may be specified in the AoA or by the shareholders at the GA meeting. A member whose term of office expires can be re-elected.

The Board members can be appointed pursuant to the following principles:

  1. At the time of incorporation of the company: The Board will be unanimously appointed by the founders under the AoA.
  2. Following the establishment of the company: As a general rule, the Board members will be appointed by the shareholders at a GA meeting through a resolution adopted by the required quorum – unless the AoA sets an aggravated quorum, the GA will be convened with at least 1/4 (one-quarter) of the shareholders or their representatives, and the decision quorum is the majority of the
  3. Exceptional appointment of the Board member [the so-called “Co-option”]: In case of a vacancy on the Board for any reason, the Board may adopt a resolution for the appointment of a new member on a temporary basis to be submitted for the approval of the shareholders at the next GA

Vacancy on the Board

Under the related provisions of the TCC, a vacancy may occur on the Board in various circumstances. Accordingly, the Board membership would automatically terminate in the following events: (i) the bankruptcy of the member, (ii) if the member loses requirements and the qualifications for the membership stipulated in the AoA and the TCC, (iii) if the member is subject to an interdiction order as stipulated in the Turkish Civil Code No.4721, and (iv) death of the respective member.

A vacancy may also occur by the resignation of the Board member. In any case, the GA is authorized to dismiss any member of the Board, provided that there is either (i) a related item in the agenda of the relevant GA meeting (agenda item regarding discussions of the financial statements is also considered sufficient), or (ii) a just cause for the dismissal of such member.

The vacancy on the Board may prevent the company to carry out its daily business and transactions. That being said, in case of a vacancy on the Board for any reason, the Board is obliged to either (i) adopt a resolution calling for a GA meeting where the appointment of new member will be discussed, or (ii) adopt a resolution for the appointment of a new member by itself.

Co-option

Appointment of a member in case of a vacancy by the Board itself – the so-called “Co-option” – is an exception to the general rule that the Board members to be appointed by the GA.

Co-option right enables the Board members to appoint a new member to the Board on a temporary basis. Accordingly, the co- opted member needs to be submitted to the next GA meeting for approval. Hence, s/he will perform his/her duty as a Board member until the next GA meeting, and the resolutions adopted by affirmative vote of that member until the GA meeting would be valid and binding on the company.

However, the GA has the sole power to approve or refuse the appointment of the co-opted member. If it refuses, the membership of that member will cease, and the GA will appoint a new Board member to fill the vacancy. The validity of the resolutions adopted in the meantime would not be affected due to the disapproval of the co-opted member by the GA. 

Co-option in Shareholders Agreements

In shareholders agreements, it is very common for the parties to agree on that a certain number of Board members to be selected by a group of shareholders whereas the remaining members to be selected by the other group of shareholders. Under Turkish law, such arrangements are (and need to be) reflected into the AoA by creating share classes and granting privileges to those classes in respect of nomination of the Board members. If this is the case, the GA will have to appoint among the members selected by the relevant class of shareholders to the Board, unless there is just cause for the refusal of the appointment.

Accordingly, if the membership of a Board member nominated by a class of shareholders ceases, then the Board should appoint the new member among the individuals designated by the same class of shareholders in order to prevent any prejudice to their right to be represented on the Board.

Conclusion

Turkish law recognizes the co-option at the Board level in joint stock corporations. It is an exception to the non-transferrable authority of the shareholders for the appointment of the Board members, and basically enables the Board members to appoint a new member to the Board for a temporary term.

By Zahide Altunbas Sancak, Partner, and Sevinc Jafarova, Associate, Guleryuz & Partners

Turkey Knowledge Partner

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