I. INTRODUCTION
In joint-stock companies, board members act as the principal body both in internal affairs and in representing the company externally. Accordingly, board members of joint-stock companies may be held personally liable for the company’s public debts, whereas shareholders’ liability for public receivables depends on whether they have executive authority or managerial duties. Especially regarding tax debts and social security premium debts, the relevant provisions under Law No. 6183 on the Procedure for the Collection of Public Receivables and Law No. 5510 on Social Insurance and General Health Insurance impose strict, objective liability on board members when the company’s assets are insufficient to meet the debt.
While joint-stock companies are separate legal entities and are in principle solely liable for their own debts, statutory regulations allow liability to be attributed directly to the company’s legal representatives, i.e., board members, in cases involving public debts such as tax or social security premiums. The rationale of these provisions is to safeguard public interest by enabling recovery from the personal assets of board members when the company’s assets prove insufficient.
II. LIABILITY OF BOARD MEMBERS FOR SOCIAL SECURITY PREMIUM DEBTS
Article 88 of Law No. 5510 regulates the liability of employers in the event that social security premiums and related debts owed to the Social Security Institution (“SGK”) are not paid. According to this article, in the case of legal entity employers, ‘‘senior executives or authorized persons, including board members’’, are jointly and severally liable with the employer for unpaid social security premiums and related debts. This clearly demonstrates that board members of joint-stock companies may be held liable along with the company.
- Scope and Nature of Liability
The liability of the board members arising from the SGK premium debts is joint and several liability. This means that the SGK could pursue the company or the board members in any order and together while collecting its receivables. In fact, in practice, the SGK often sends separate payment orders to all the board members for the company’s unpaid premium debt. According to the law, the SGK can directly apply to each of the board members for the collection of the receivables without the need to first pursue the company. In other words, when it comes to the SGK premium receivables, all the board members can be taken as interlocutors for the entire debt without the requirement that the company debt be collected from the company’s assets first, and these individuals are held responsible for the payment of the debt with all their personal assets. The SGK can demand the entire receivable from even a single member of the board. Although the member who pays the debt has the right to recourse to the company for the amount paid, this process does not eliminate the issue of the members being responsible with their assets.
- Fault and Justifiable Cause
The liability of board members for SGK premium debts is an objective liability arising from the letter of the law. Board members are jointly and severally liable to the institution even if they are not at fault. The institution can track each of the board members without having to track the company first and send them a payment order. Another view in the doctrine emphasizes that this liability is a type of “fault-based liability”. According to the provisions of the Turkish Commercial Code, especially TCC Article 553, the board of directors is held liable for damages arising from the failure to diligently conduct the company’s business in proportion to their faults. In terms of SGK premium debts, the expression “without a justified reason” in Article 88 of Law No. 5510 is interpreted as requiring the board of directors to be negligent or faulty. Simply put, if there is a justified reason, such as force majeure, unforeseen and unavoidable circumstances that prevent premiums from being paid on time, the directors can be relieved of liability. However, while the concept of just cause is evaluated at the discretion of the judicial authorities in each concrete case, the burden of proof is placed on the manager who wants to avoid liability.
- Term and Personal Conditions of Liability
The liability of board members is limited to premium debts incurred during the period they were on duty. If a person was not involved in the management of the company during the period to which the premium debt pertained, being a partner alone does not make him/her liable. For example, in the decision dated 16.6.2020 of the General Assembly of the Court of Cassation Civil Law, it was ruled that a person who served as a board member between 2002-2005 cannot be held liable for the SGK premium debts accrued in 2008 because he/she is no longer a manager. The decision clearly states that “Partners in joint stock companies are not liable for premium debts unless they are senior managers and authorized persons”, emphasizing that the mere status of a partner is not sufficient for the debt. Therefore, if a board member has resigned or his/her term of office has expired, he/she will not be personally liable for the SGK debts that will arise after his/her departure. Similarly, other partners who were not in the management of the company at the time the premium debt arose cannot be pursued for this debt. This principle eliminates liability for periods after the date on which the board membership ends, and it also means that members who take office later will not be responsible for debts from previous periods. For this reason, members of the board of directors of joint-stock companies should closely monitor whether their SGK premium debts are paid on time.
III. LIABILITY OF BOARD MEMBERS FOR TAX DEBTS
The liability of the members of the board of directors in terms of the tax debts and related ancillary receivables of joint-stock companies is regulated by Article 10 of the Tax Procedure Law No. 213 (“VUK”) and Article 35 of the Law No. 6183 on the Procedure for Collection of Public Receivables. According to Article 10 of the VUK, if the taxpayer or responsible party is a legal entity, the legal representatives of that legal entity are responsible for the fulfillment of tax obligations. The legal representative is essentially the member of the board of directors in joint-stock companies. If these obligations are not fulfilled on time and the taxes that the company is required to pay are accrued and not paid, the legal representatives are personally responsible for the collection of the tax with their own assets. Similarly, Article 35 of the Law No. 6183 stipulates that “public receivables that cannot be collected completely or partially from the assets of legal entities or that are understood to be uncollectible shall be collected from the personal assets of the legal representatives.” According to this legal framework, if the tax debt of a joint-stock company is not paid, the tax office may contact the board members, who are the legal representatives of the company, to request payment of the debt and take the necessary legal action.
- Conditions of Liability
The liability of board members for tax debts is subject to certain preconditions in the law. These conditions, in other words, the conditions sought for the liability of the representative to arise, are summarized as follows;
- Being a Legal Representative
The person must be the legal representative of the company during the period when the tax debt arises and must be paid. As a rule, the authority to represent and manage the company belongs to the board of directors in joint stock companies. The authority to represent may be delegated to one or more board members in accordance with the Turkish Commercial Code or to third parties with the title of director appointed by the board members in accordance with Article 375 of the TCC. However, in any case, the person who will be held responsible for the payment of the tax must have the duty and authority to represent the company during that period. For example, if the person representing the company during the period to which the tax debt is related is not a board member but a third person appointed as a director, the responsibility will primarily belong to that director. On the other hand, since the members of the board of directors during the period when the tax accrues are also legally considered representatives, they may not be able to escape liability arising from failure to fulfill tax obligations even if the authority to represent is actually transferred. In short, the person to be held responsible must have the title of legal representative in terms of that tax debt.
- Violation of Payment Obligation
The company must not have paid the tax due on time. This situation usually occurs when it is understood that the tax debt cannot or will not be collected from the company’s assets. Since the law connects the liability of the legal representative to the fact of “failure to fulfill tax obligations”, if the company has paid its tax on time or if this debt is paid by the company later in some way, the representative’s liability does not come into question. Therefore, the liability of the board members is made dependent on the fact that a tax that the company is actually obliged to pay has not been paid.
- Secondary Nature of Liability
The liability of the board members for tax debts is a secondary liability. This means that the tax debt must first be collected from the company’s own assets, and if this attempt fails or it is understood that it is impossible to collect the debt from the company, then the personal assets of the legal representatives must be resorted to. This issue differs from the liability arising from the SGK premium debts. In the event of liability for the SGK premium debts, the company’s board members are held directly liable to the institution jointly and severally.
- Fault and Tax Penalties
The fault status of the legal representative in terms of tax debts may also be important. In Article 10 of the Tax Procedure Law. it is accepted that the representative’s liability is linked to a faulty behavior such as non-payment of tax. In this context, the decisions of the Court of Cassation and the Council of State evaluate the representative’s liability as a type of service fault or liability based on negligence. In practice, payment orders regarding the representative are generally for the original tax and delay interests; tax penalties are not requested from the representative. The reason for this is the personal criminal nature of the tax penalty and the fact that the liability in Article 10 of the Tax Procedure Law is seen more as securing the original tax. Although it is seen that tax penalties can also be requested from the representatives in some cases, the established precedent of the Council of State is that tax penalties imposed without the fault of the representative cannot be collected from the representative. In practice, it is seen that the liability of the members of the board of directors is essentially limited to the unpaid tax amount and its ancillary items, and penal sanctions such as tax penalties are only considered if they arise from the representative’s own fault.
- Exoneration from Liability
Board members can take certain precautions to avoid personal liability due to non-payment of the company’s tax debts. For example, when they start their duties, it is important to check the company’s past tax debts and ensure that any debts are restructured or paid. If the company has difficulty paying, contacting the tax administration and making payment plans or restructurings can reduce the risk of representatives facing personal liability in the future. In addition, a board member who leaves their representative position should check that their tax obligations up until the date they leave have been fully fulfilled and that the necessary notifications have been made to the tax office. In particular, a board member whose term has expired or who has resigned should immediately register the situation with the trade registry and, if possible, notify the tax office. In this way, the possibility of being held responsible for debts that will arise after the date they leave can be eliminated.
IV. LIABILITY OF SHAREHOLDERS IN LIGHT OF COURT OF CASSATION GENERAL ASSEMBLY DECISION DATED 16 JUNE 2020, FILE NO. 2016/10-2071, DECISION NO. 2020/405
In the decision, the plaintiff requested the cancellation of the payment order sent to him for the 2008 SSI premium debts of the joint-stock company. The plaintiff served as the vice chairman of the board of directors between 2002 and 2005; his board membership ended after 2005, but he remained a partner in the company. The General Assembly of Civil Chambers of the Court of Cassation emphasized that the plaintiff was not a senior executive or authorized person on the date the debt accrued, and ruled that being a joint-stock company partner alone would not create liability.
There is no personal liability for the partners of joint-stock companies. However, as clearly stated in the decision, “As long as the partners in joint-stock companies are not senior executives or authorized persons, they are not responsible for their premium debts.” Therefore, being a shareholder in a joint-stock company does not cause recourse to personal assets for SSI premium debts unless they are board members or have representation authority. The main reason for this is the Social Security Law No. 506. 80 and the Social Security and General Health Insurance Law No. 5510. 88 regulations. These legal regulations reduce the liability to the level of legal representative and senior executive and do not include a special regulation regarding partners. The Court of Cassation emphasizes that shareholders of joint stock companies cannot be pursued for SGK debts only as shareholders; the liability is limited to the period in which they are authorized to represent. The difference between the partners of joint stock companies and limited company partners is Article 35 of Law No. 6183. The article of the law holds limited company partners responsible for public receivables in proportion to their capital shares. However, the same article does not apply to the partners of joint stock companies. The law clearly regulates the liability of shareholders of limited companies. In a joint stock company, liability is limited to managers and senior officials who have the status of legal representative. The court drew attention to this distinction in its justification for reversal and stated that conducting a share research alone in a joint stock company would not be sufficient to establish liability. In this case, as a result, if the partner of the joint stock company is only a shareholder, he/she cannot be subject to personal pursuit for the SGK premium or tax debt that cannot be collected from the company. If the partner is also a board member or executive member and uses the authority to represent, he/she is jointly and severally liable for the premium tax debts of the period he/she was in office. The partner whose board membership has ended can get rid of future debts by registering the date of his/her departure with the trade registry. However, the risk of past debts limited to the period he/she was in office will continue. Unlike the shareholders of a joint-stock company, limited company partners are liable for public debts that cannot be collected from the company with their personal assets in proportion to their capital share, but this issue is not accepted as valid for the partners of a joint-stock company.
V.CONCLUSION
Although the members of the board of directors of a joint-stock company are not personally responsible for the company’s debts, as a rule, they are subject to significant liabilities under special law provisions when it comes to SGK premium debts and tax debts. In terms of SGK premium debts, the law holds the members of the board of directors jointly and severally responsible together with the company; in the event of non-payment of the premium debt to SGK, the Institution is able to collect its receivables by directly applying to all members of the board of directors. In tax debts, the liability of legal representatives is a secondary liability of an accessory nature that does not come into play unless collection from the company becomes impossible. In both cases, the members of the board of directors are responsible for the payment of the public receivables with their own assets and may have to pay the entire debt.
These liability regimes require the members of the board of directors to perform their duties diligently and especially to ensure that public debts are paid on time. Otherwise, if the company fails to pay its debt, the state may seek to collect its receivables from the members’ personal assets. In fact, court decisions have also revealed that board members can only be held liable for public debts during the periods when they represented and managed the company, and that being a partner alone is not sufficient for liability unless they hold these titles.
