Joint-stock companies constitute one of the fundamental pillars of the modern business world, and the management of these companies requires a professional structure. Within this structure, the board of directors is one of the most significant organs of the company. Just as the executive function of a state is undertaken by the government, in joint-stock companies, this function is performed by the board of directors. The board of directors plays an active role in both the internal operations and external relations of the company. Therefore, the board of directors is granted significant powers both within and outside the company. However, these powers also entail responsibilities. Board members are obliged to protect the interests of the company and ensure its sustainability. These responsibilities have both legal and public dimensions.

This study will focus on the responsibilities of board members, with particular emphasis on their legal liability. The Turkish Commercial Code ("TCC") contains important regulations on this subject. While Article 553 of the TCC outlines a general framework regarding the liability of board members, Articles 549 and the following provisions regulate specific liability cases. In this context, the fundamental principles of legal liability, situations necessitating liability, liability lawsuits, and the conditions of such lawsuits will be examined. Additionally, situations that terminate liability will be analyzed in the final section of the study.

1. Legal Liability of Board Members

Joint-stock companies largely have a professional structure, which requires that the management of the company be conducted not by shareholders but by the board of directors and other executives. This means that the "principle of inherent organ" does not apply to joint-stock companies. In other words, not every shareholder is also an executive. The management of the company is carried out by board members and other executives. While these executives are obliged to protect the company's interests, they may sometimes engage in actions that harm the company or shareholders. Therefore, the TCC contains detailed provisions regarding the liability of board members.

• 1.1. Liability Arising from Contract

The liability of board members primarily arises from their contractual relationship with the company. Pursuant to Article 553 of the TCC, board members act within the scope of their contractual relationship with the company. Accordingly, the liability of board members is of a contractual nature. If the damages suffered by the company result from breaches of this contract, board members may be held liable for these damages.

• 1.2. Fault-Based Liabilityı

According to the TCC, the liability of board members is based on fault. That is, board members can only be held liable for their wrongful acts. As stipulated in Article 553/1 of the TCC, board members are liable if they violate their statutory or contractual obligations through fault. Thus, the existence of fault is a prerequisite for their liability.

However, there are differing opinions in doctrine regarding the burden of proof for fault. Some argue that the plaintiff must prove the fault of the board members. Another view holds that board members must prove their lack of fault. This perspective is based on the contractual liability principles set forth in Article 112 of the Turkish Code of Obligations ("TCO"). According to this provision, a party who breaches a contract must prove that they are not at fault. Consequently, the view that board members bear the burden of proving their lack of fault is more widely accepted.

• 1.3. Joint and Several Liability and Differentiated Liability Principle

YThe principle of joint and several liability applies to the liability of board members. Pursuant to Article 557 of the TCC, multiple board members may be held liable for the same damage. In such cases, board members are jointly and severally liable to the injured party. However, the joint and several liability regulated in Article 557 differs from classical joint and several liability. According to this provision, board members are held liable in proportion to their fault and the circumstances of the case. This is referred to as "differentiated joint and several liability."

• 1.4. Proportionality Between Authority and Liability

Another important principle regarding the liability of board members is the proportionality between authority and liability. Pursuant to Article 553/3 of the TCC, board members cannot be held liable for matters beyond their control. This provision emphasizes that the liability of board members should be proportional to their authority. In other words, board members can only be held liable within the scope of their own authority.

2. Cases Giving Rise to Legal Liability

The legal liability of board members arises in specific circumstances regulated under Articles 553 and the following provisions of the TCC.

According to Article 553/1 of the TCC, board members are liable to the company, shareholders, and company creditors if they violate their statutory or contractual obligations through fault. This liability is based on fault and arises from the wrongful acts of board members.

Furthermore, under Article 553/2 of the TCC, board members may also be held liable for the actions of individuals to whom they have delegated their duties. However, this liability is lifted if reasonable diligence was exercised in the delegation of duties.

Finally, pursuant to Article 553/3 of the TCC, board members cannot be held liable for matters beyond their control. This provision establishes the limits of the liability of board members.

3. Special Provisions (TCC Art. 549 et seq.)

In addition to the general provisions regarding the liability of board members, the TCC also contains provisions regulating liability in specific situations. These special provisions outline the circumstances under which board members may be held liable for certain actions.

• 3.1. Falsification of Documents and Statements (TCC Art. 549)

TCC Article 549 regulates the liability of individuals who prepare or issue false, fraudulent, forged, or misleading documents or statements related to a joint-stock company. According to this article, individuals who issue false documents or make misleading statements concerning the company shall be held liable for damages arising from such acts. This liability is based on the principle of contractual liability. Furthermore, under TCC Article 562/8, individuals who falsify such documents are subject to imprisonment for a period of one to three years.

This provision particularly applies in cases where misleading financial statements are prepared for the company. For example, if false information is included in the company's balance sheet or income statement, this constitutes a violation of this article. Such actions may mislead the company's shareholders, creditors, and other related parties, potentially causing significant harm. Therefore, TCC Article 549 regulates both the civil and criminal liability of individuals engaging in such actions.

• 3.2. False Statements Regarding Capital and Awareness of Insolvency (TCC Art. 550)

Joint-stock companies are classified as capital companies, and capital is one of their most fundamental elements. TCC Article 550 governs the liability of individuals who fail to fully pay their subscribed capital contributions or falsely present them as paid despite insolvency. In such cases, these individuals shall be held jointly and severally liable to the company. Additionally, under TCC Article 562/9, individuals engaging in such actions are subject to imprisonment for a period of three months to two years or a judicial fine.

This article primarily applies during the company's incorporation or capital increase process. Individuals subscribing to the company's capital are obligated to fully pay their commitments. However, if these individuals are insolvent or fail to pay their subscribed capital, the financial condition of the company may be severely impacted. Therefore, TCC Article 550 establishes both civil and criminal liability for individuals engaging in such actions.

• 3.3. Fraud in Valuation (TCC Art. 551)

The protection of a joint-stock company’s assets is crucial for its sustainability. TCC Article 551 regulates the liability of individuals engaging in fraudulent valuation of in-kind capital or assets to be acquired by the company. According to this article, individuals committing fraud in valuation shall be held liable for damages arising from such actions. This liability is based on the principle of fault-based liability. Furthermore, under TCC Article 562/10, individuals engaging in such actions are subject to a judicial fine of no less than ninety days.

This provision is particularly relevant during the valuation of company assets. The valuation process directly affects the company’s financial condition. Fraudulent valuation may result in the company's assets being presented at a value that is either lower or higher than their actual worth. This situation may mislead shareholders, creditors, and other related parties, potentially causing significant damage. Therefore, TCC Article 551 regulates both the civil and criminal liability of individuals engaging in such actions.

• 3.4. Raising Funds from the Public (TCC Art. 552)

TCC Article 552 prohibits raising funds from the public for the establishment of a company or for increasing the company’s capital. According to this article, individuals who raise funds from the public and board members who approve such actions shall be jointly and severally liable for the immediate deposit of the collected funds into a bank designated by the Capital Markets Board (“CMB”). This liability applies regardless of fault. Furthermore, under TCC Article 562/11, individuals engaging in such actions are subject to imprisonment for a period of six months to two years.

This provision applies particularly when a company attempts to increase its capital through public fundraising. Such actions may abuse public trust and lead to significant financial losses. Therefore, TCC Article 552 regulates both the civil and criminal liability of individuals engaging in such actions.

• 3.5. Failure to Establish a Website for a Joint-Stock Company (TCC Art. 1524)

TCC Article 1524 mandates that capital companies subject to auditing must establish a website within three months of their registration with the trade registry and publish certain information on this website. Failure to comply with this obligation results in the liability of board members and other responsible individuals for any resulting damages. Furthermore, under TCC Article 562/12, individuals failing to fulfill this obligation are subject to a judicial fine ranging from one hundred to three hundred days.

This provision was introduced to enhance corporate transparency. The company’s website serves as a platform for publicly disclosing financial status, activities, and other critical information. Failure to comply with this requirement may reduce corporate transparency and mislead shareholders, creditors, and other related parties. Therefore, TCC Article 1524 regulates both the civil and criminal liability of individuals who fail to meet this obligation.

• 3.6. Other Cases

Other instances of board member liability regulated under the TCC include deficiencies in merger, division, and conversion transactions, unlawful exercise of control in corporate groups, failure to take necessary actions when the number of shareholders is reduced to one, violation of participation restrictions in board meetings, prohibition of transactions with the company and borrowing from the company, as well as violation of the non-competition obligation. In such cases, board members shall be held liable if they fail to fulfill their statutory obligations or engage in prohibited acts while performing their duties.

4. Liability Insurance

Article 361 of the TCC introduces a new regulation regarding liability insurance for board members. According to this article, board members may insure against damages they may cause to the company due to their faults while performing their duties. If the insurance amount exceeds twenty-five percent of the company's capital, this must be disclosed by the Capital Markets Board and the stock exchange for publicly traded companies. This regulation aims to limit the liability of board members and protect the interests of the company.

5. Liability for Public Debts

The liability of board members is not limited to contractual relationships with the company. They also bear various responsibilities in the field of public law, particularly regarding public debts of the company. Public debts refer to receivables of the state or other public institutions, and their collection is regulated under the Law No. 6183 on the Collection Procedure of Public Receivables. Additionally, Article 10 of the Tax Procedure Law contains provisions concerning the liability of board members for public debts.

However, the scope of this study does not include a detailed examination of the liability of board members for public debts. Therefore, this issue will only be addressed in general terms, with the primary focus being the legal liability of board members and the conditions for liability lawsuits.