Introduction

Joint stock companies are companies whose capital is divided into shares, which are liable for their debts solely with their assets, and in which shareholders are, as a rule, liable to the company only up to the capital they have undertaken (TCC Art. 329). A joint stock company has legal personality and conducts its activities through its corporate bodies. Under the Turkish Commercial Code (“TCC”), the board of directors and the general assembly are regulated as the mandatory bodies of a joint stock company; the functional distinction between these bodies is concretized by enumerating their non-transferable duties and powers (TCC Arts. 375, 408).

The general assembly is the decision-making body of the company. General assembly resolutions constitute the outward manifestation of the corporate will of the joint stock company aimed at producing legal consequences. Shareholders or their representatives express their will through voting. The fact that general assembly resolutions produce binding effects for all shareholders, whether present at the meeting or not (TCC Art. 423), is the primary reason why the convening of the general assembly and the adoption of resolutions are subject to strict formal requirements. In this context, determining not only the lawfulness of general assembly resolutions but also the sanction arising from unlawfulness is of decisive importance in practice.

Within the system of the Turkish Commercial Code No. 6102, defects in general assembly resolutions are examined under the headings of non-existence, nullity, suspended invalidity, and annulability. This distinction is not merely theoretical; it has significant practical consequences ranging from litigation strategy and forfeiture periods to suspension of execution and registration–announcement effects. In this study, these types of defects, and particularly the questions of “who may file an action, under which conditions, and within what period” in relation to annulment actions, will be examined from a practice-oriented perspective.

I. Constitutive Elements of a General Assembly Resolution and the Prohibition of “Circulation by Hand”

In order to speak of the existence of a general assembly resolution, a general assembly meeting must first be duly convened and held in accordance with the law and the articles of association, and a resolution must be adopted within such meeting. It is not possible in joint stock companies to adopt resolutions without holding a general assembly meeting and without the shareholders or their representatives coming together. Therefore, as a rule, adopting resolutions by way of “circulation by hand” is not accepted in joint stock companies. Whether the constitutive elements exist plays a decisive role particularly in the assessment of non-existence.

II. Non-Existence

Non-existence refers to the situation where a legal act is deemed never to have come into existence in the legal order due to the absence of at least one of its constitutive elements. Although the concept of non-existence is not expressly defined in the TCC, it is generally accepted in doctrine and practice. In the context of the general assembly, non-existence typically arises in situations such as the meeting not being held in fact or the decision-making mechanism not being operated at all.

The consequence of non-existence is that the resolution produces no legal effects from the outset. The allegation of non-existence may be raised by anyone with a legitimate interest and must be taken into account ex officio by the judge. A court decision rendered in an action for the determination of non-existence is declaratory in nature. However, extending the concept of non-existence so as to cover every procedural defect would narrow the scope of the annulment regime and disrupt the system; therefore, in practice, non-existence should be limited to severe cases involving the absence of constitutive elements.

III. Nullity (TCC Art. 447)

Nullity means that the resolution is absolutely invalid from the outset. Article 447 of the TCC regulates in particular the circumstances under which general assembly resolutions are null and void. Accordingly, general assembly resolutions are null and void particularly if they: (i) restrict or eliminate the shareholder’s right to attend the general assembly, minimum voting rights, right to bring actions, or other inalienable rights arising from the law; (ii) limit the shareholder’s rights to information, examination, and audit beyond what is legally permitted; (iii) violate the fundamental structure of the joint stock company or contravene capital maintenance rules.

The use of the word “particularly” in the text of the article indicates that the enumeration is not exhaustive. Accordingly, resolutions whose subject matter is impossible or which are contrary to mandatory provisions, public order, morality, or personality rights may also result in nullity. Nevertheless, since nullity constitutes an exceptional and severe sanction within the system, it should not be interpreted broadly so as to eliminate the scope of annulability. Otherwise, the time-limit system prescribed for annulment actions and the function of transactional security may become ineffective.

A claim of nullity is not subject to any limitation period and is taken into consideration ex officio by the courts. A request for the determination of nullity may be the subject of a declaratory action filed by interested parties. If a decision of nullity becomes final, its effects vis-à-vis all shareholders and its consequences in terms of registration and announcement must be assessed within the framework of the relevant provisions of the TCC.

IV. Suspended Invalidity

Suspended invalidity arises where the effectiveness of a resolution depends on a specific approval or declaration of will. Under the TCC, the classic example is the requirement of approval by the special assembly of privileged shareholders for amendments to the articles of association affecting their rights (TCC Art. 454). In such cases, the general assembly resolution does not by itself produce definitive legal consequences; it remains suspended until the required approval is obtained. If approval is granted, the resolution becomes valid; if not, it does not produce any effect.

V. Annulability (TCC Art. 445 et seq.)

A. Grounds for Annulment

Pursuant to Article 445 of the TCC, the persons listed in Article 446 may bring an action for the annulment of general assembly resolutions that are contrary to the law or the articles of association, particularly those violating the principle of good faith. Grounds for annulment fall into three main categories: violation of the law, violation of the articles of association, and violation of the principle of good faith.

The concept of “law” must be interpreted broadly. The violation may relate not only to the provisions of the TCC but also to other mandatory regulations applicable to the specific case. With regard to the violation of the principle of good faith, the aim is to prevent the majority from oppressing the minority through unjust or unfounded resolutions. Thus, the annulment action becomes an important supervisory mechanism limiting the majority principle.

The fundamental characteristic of annulable resolutions is that they continue to exist legally until an annulment decision is rendered. Therefore, unlike non-existence and nullity, annulment does not mean that the resolution is automatically invalid.

B. Who May File an Annulment Action?

Article 446 of the TCC lists the persons entitled to bring an annulment action.

In respect of shareholders, two situations arise. First, regardless of whether they attended the meeting, voted against the resolution, or cast any vote at all, shareholders may file an annulment action if they claim that the meeting was not duly convened, the agenda was not properly announced, unauthorized persons attended the meeting and voted, or a shareholder was unjustly prevented from attending the meeting or exercising voting rights, and that such irregularities influenced the adoption of the resolution.

Second, shareholders who attended the meeting may bring an action for annulment based on the content of the resolution only if they voted against the resolution and had their dissent recorded in the minutes of the meeting. Recording dissent in the minutes is a critical element for the admissibility of the action in practice. Moreover, dissent must be expressed after the resolution has been adopted and directed against the resolution itself; objections raised while the resolution is still at the proposal stage may not, in all circumstances, satisfy the dissent requirement.

The board of directors may also file an action for annulment of a general assembly resolution. If the board consists of more than one member, a board resolution must be adopted in order to initiate the action. Finally, if the implementation of a general assembly resolution would lead to the personal liability of a board member, each board member has the right to file an annulment action individually.

C. Time Limit and Competent Court

An annulment action must be filed within three months from the date of the resolution before the commercial court of first instance located at the company’s registered office (TCC Art. 445). The three-month period is a forfeiture period. Once this period expires, the request for annulment can no longer be heard.

VI. Effects of the Action on the Company, Security, and Bad Faith

Actions for the annulment of general assembly resolutions are common in practice. While the annulment action provides the minority with an effective supervisory mechanism against the majority, instances of abuse of this right are also encountered. This risk becomes more visible particularly because even a small shareholding suffices to bring an action and because the annulment action is subject to a fixed court fee.

To limit the possibility of abuse, the TCC provides for security and liability mechanisms. Pursuant to Article 448 of the TCC, upon the company’s request, the court may order the claimant to provide security against potential damages. The court determines the nature and amount of the security. The decision on security is not rendered ex officio but only upon the company’s request. Security does not constitute a condition for the admissibility of the action; if the company does not request it, the court cannot raise the issue of security ex officio.

In case of bad faith litigation, pursuant to Article 451 of the TCC, the claimants are jointly and severally liable for the damages suffered by the company due to such action. Bad faith in this context is connected to the principle of good faith regulated under Article 2 of the Turkish Civil Code. The exercise of a right in a manner contrary to good faith and with the intent to cause harm is not protected by the legal order. In this framework, filing an annulment action with the purpose of exerting pressure on the company, placing it in a difficult position, or forcing acceptance of personal demands; or the absence of a reasonable interest justifying the action, may, depending on the circumstances of the case, be relevant in the assessment of bad faith.

Security and compensation liability must be distinguished. Security is a safeguard provided at the beginning of the proceedings against the risk of potential damages; compensation liability, on the other hand, aims at indemnifying damages that have actually materialized at the end of the proceedings. The existence of security does not mean that compensation will be limited to the amount of the security.

Conclusion

The system concerning defects in general assembly resolutions serves to establish a balance between the majority principle and the protection of minority rights in joint stock companies. Non-existence and nullity appear as forms of invalidity that may be asserted without being subject to any time limitation in cases of severe defects; annulability, on the other hand, constitutes a mechanism subject to a three-month forfeiture period, with formal requirements, and functions to review the lawfulness of the majority’s will. Suspended invalidity forms a separate category for resolutions dependent on specific approval conditions.

In practice, correct legal qualification is one of the factors determining the fate of the action. In annulment actions, conditions such as standing, recording dissent in the minutes, and compliance with the forfeiture period must be assessed with particular care. On the other hand, security and bad faith liability stand out as important instruments for protecting the company against the abuse of the annulment right.