Registry Practice Change Relating to Internal Directives for Representation of Companies

Istanbul Trade Registry (the “Registry”) published an announcement on its website regarding the issues to be considered regarding the scope and limits of representation authorization when preparing internal directives on representation. In joint stock and limited liability companies where the powers of the management body of the company are delegated to limited authorized representatives within the scope of an internal directive, it has become necessary to review the existing internal directives and to address their compliance with the issues stated in the announcement regarding the change of practice.

Internal directives are preferred by many companies as they enable the establishment of a general and basic order in the business and transactions of a company, limiting the responsibility of the management body, regulating the scope and use of powers in line with the expertise of the executive positions, providing a professional and corporate character of the company management and providing a fast and effective decision-making mechanism especially in companies with a high number of executives. In this context, companies prepare internal directives according to their needs and register and announce these internal directives.

Internal directives are related to the regulation of limited powers of representation in terms of subject matter and amount, and at least one member of the board of directors in joint stock companies and at least one manager in limited liability companies must be authorized in an unlimited manner. The members of the board of directors or managers may also jointly use their unlimited signature authorities. Many companies apply the double signature rule in terms of unlimited signature authorities. However, in practice, many companies want to allow some of the jointly authorized board members or managers to perform certain transactions alone or together with other limited signatories even if the double signature or joint signature rule is applied for unlimited representation of the company. In this context, the most common practice is to grant joint signature authority to the members of a company's management body for unlimited representation, while some of the members are also granted with certain authorizations regulated in the internal directives. The new practice of the Registry is closely related to such transactions.

Our notes on the practice change of the Registry are as follows:

  • In joint stock and limited liability companies, it is not necessary to define the unlimited representation of the company when drafting the internal directive on representation. However, it is also possible to define unlimited representation authority in the internal directive from now on. In this case, it is stated that, if requested, the unlimited representation authority should be clearly and unambiguously regulated as an authority to represent and bind the company in the broadest sense and in all matters and the definition of the position, group or level to which this authority is granted with should be explicitly provided. The authorization to be granted to an unlimited authorization under an internal directive must also be compatible with the unlimited representation authority to be given to the relevant directors/managers. For example, if the board members who have unlimited representation powers in the company are also granted with Group A signature authority, it should be clearly regulated that Group A authorized signatories are also authorized to represent the company in an unlimited manner pursuant to the internal directive. The type of unlimited authorization determined and granted by the board resolution must be compatible with the group or degree authorizations granted to these persons.
  • A person should not be given both limited and unlimited authorities. Therefore, internal directives issued with this understanding should be revised and attention should be paid to this issue when making appointments. A person with unlimited authority should not be appointed for limited transactions according to an internal directive and a person with jointly unlimited authority should not be individually authorized in an unlimited manner.
  • In the new practice, persons authorized jointly with unlimited powers may perform some transactions with other transaction groups and persons from different groups in addition to other persons with whom they are jointly authorized in an unlimited manner. However, within the scope of the new practice, this will only be possible if clear provisions are included in the internal directive and the unlimited authorized signatory group is defined as the limiting element for other group of signatures. In other words, the limiting powers of unlimited authorities should be defined in the internal directive and while regulating the powers of other groups, how they will represent the company with this unlimited authority group should be specified. For example, if it is requested for any of the board members who have jointly unlimited authorized signatory to carry out certain transactions with another limited signature authorities, the scope of jointly unlimited authority may be regulated as Group A and while regulating the powers of the other limited authority, this group may be defined as Group B. In this scenario, the internal directive can state that Group A signatories are entitled to represent the company in the broadest manner and Group B signatories can make the certain transactions in the scope of their authorization with joint signature of any Group A signatory.
  • No person should be granted more than one signature group, signature degree or title regulated in the internal directive.
  • Both joint and individual signature authorities can be specified for a group of authorities in the internal directive. It is also possible for groups that have to act jointly for some transactions to be authorized to perform some transactions individually and these issues should be clearly specified in the internal directive.

In order to smoothly complete the registration processes of the resolutions to be adopted regarding the representation and binding of the company within the scope of the internal directive, it is widely important to evaluate the compliance of the existing internal directives in terms of the matters specified in the announcement of the Registry and to amend the internal directives if necessary.

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