Directors’ Liability

Also known as: Board Liability, D&O Liability, Liability Action, Managers' Liability, Yönetim Kurulu Üyelerinin Sorumluluğu

Author Ali Gül

In short

The liability of board members and limited company managers to the company, shareholders and creditors for loss caused by breaching, through fault, their duties under the law and the articles.

Board members, founders, auditors and liquidators are liable to the company, shareholders and company creditors for loss they cause by breaching, through fault, their obligations under the Code and the articles of association (TCC Art. 553). The same rules apply to limited company managers.

Conditions of Liability

Breach of a duty arising from the Code or the articles,
Fault; board members must perform their duties with the care of a prudent manager and protect the company’s interests in good faith,
Loss and a causal link between the breach and the loss.

A business decision later causing a loss does not in itself create liability; the question is whether the decision was taken with adequate information, without conflict of interest and with care.

Differentiated Joint Liability

If several persons are liable for the same loss, each is jointly liable with the others only to the extent the loss can be personally attributed to them according to their fault and the circumstances (TCC Art. 557). A member with little fault is therefore not liable for the entire loss.

Delegation of Management

Members who duly delegate management through an internal directive are not liable if they exercised reasonable care in selecting, instructing and supervising the delegates.

Liability Action

The company: May sue by general assembly resolution.
Shareholders: May sue for the company’s loss to be paid to the company, and for their own direct loss.
Creditors: May claim the company’s loss if the company is bankrupt.

The claim is time-barred two years from learning of the loss and the liable person, and in any event five years from the act (TCC Art. 560).

Release and Insurance

A release resolution of the general assembly is effective only for disclosed facts and against limited persons. In practice, risks are also covered by directors’ and officers’ (D&O) insurance. For liability arising from the company’s unpaid public debts, see Shareholder Liability for Public Debts.

Frequently Asked Questions

Are board members liable for every loss of the company?

No. Liability requires the member to breach, through fault, a duty arising from the Code or the articles, and a causal link between the breach and the loss. A business decision taken with care that later causes a loss does not in itself create liability.

When must a liability action be brought?

The claim is time-barred two years from when the claimant learned of the loss and the liable person, and in any event five years from the act causing the loss. If the act also constitutes an offence with a longer limitation period, that period applies.

← Glossary A–Z