NON-COMPETITION DUTY OF MEMBERS OF BOARD OF DIRECTORS IN JOINT STOCK COMPANIES
Competition is widely recognised as a key driver of efficiency, economic growth, and commercial progress. Generally, non-compete clauses prevent directors, board members, and employees from working for a direct competitor or engaging in activities that compete with the Company without its consent. In certain circumstances, however, statutory provisions impose additional restrictions to avoid conflicts of interest and protect the Company and its shareholders.
Pursuant to Article 396 of the Turkish Commercial Code numbered 6102 (the “TCC”), the competitive rights of the members of the board of directors of joint stock companies are restricted. In this regard, Article 396 of the TCC provides that:
“Without the consent of the general assembly, a member of the board of directors may not carry out, on his or her own behalf or on behalf of another person, any commercial transaction falling within the scope of the Company’s scope of activities, nor may he or she become a shareholder with unlimited liability in a company engaged in the aforesaid activities.”
If such a conduct took place, without prejudice to the other provisions regarding the liabilities of the members of the board of directors, the Company may request compensation from the relevant director or in the alternative, may consider the subject transactions having been made on behalf of the Company and commence a lawsuit claiming that the Company should benefit from the contracts concluded on behalf of third parties. Furthermore, Article 369 paragraph 2, foresees that the selection of one of these rights belongs to the director other than the director who has acted contrary to the provision of the first paragraph.
Besides, Article 369 of the TCC envisages that members of the board of directors must act in accordance with their duty of care and loyalty to the Company’s interests. Accordingly, the directors are under an obligation to prioritise the interests of the Company first. As set out under Article 396 of the TCC, the prohibition on carrying out, without the consent of the general assembly, any commercial transaction falling within the company’s business scope, as well as the prohibition on becoming a shareholder with unlimited liability in a company engaged in the same type of commercial business, constitutes a reflection of the directors’ duty of care and loyalty.
Pursuant to Article 396 paragraph 3 of the TCC, time limits have been established for the exercise of the statutory rights granted under the aforesaid provision. In this context, the said provision provides that:
“These rights shall become time-barred three months after the date on which the other members of board of directors become aware that the relevant commercial transactions have been carried out or that the director has joined another company, and in any case, one year after the occurrence of such events.”
Accordingly, if a member of board of directors becomes aware that another member has violated the non-compete obligation, they must act and exercise their rights within three months from the date of becoming aware and, in any event, within one year from the date of the violation; otherwise, their rights will be time-barred.
In this regard, Article 396 of the TCC prohibits the members of board of directors from engaging in activities that compete with their company. This prohibition is limited in scope in the sense that it only applies to the Company’s actual business activities and does not cover all fields of business.
If the prohibition is violated, Article 396 of the TCC entitles the Company certain remedies, such as (i) claiming compensation, (ii) treating the transactions as conducted on behalf of the Company, or (iii) transferring any benefits from the transactions to the Company. However, these rights must be exercised within the aforementioned time limits.
Our Law Firm remains at your disposal for any further clarifications you may need.
Copyright © 2025 Cailliau&Colakel Attorney Partnership, All rights reserved.