Piercing the Corporate Veil in Turquie

In the Turkish legal system, the personal liability of the shareholders and board of directors against the debts of the company is determined by the Turkish Commercial Code (TCC). In this framework, the situation of limited liability companies and joint stock companies should be analyzed separately in accordance with the provisions of the TCC.  Especially in terms of public debts of companies, the responsibilities of shareholders, board of directors and legal representatives differ.

Joint Stock Companies

Members of the board of directors and executives are liable for compensating damages arising against the company, shareholders, and company creditors if they breach their obligations arising from the law and the articles of association through fault. As a rule, shareholders of joint stock companies are only liable to the company for the capital shares they have committed.

Shareholders who are members of the board of directors are liable for all public debts of the company regardless of their capital shares. Shareholders who are not members of the board and do not hold any managerial position or representative authority in the company have no liability for public debts.

Limited Liability Companies

Limited liability companies do not have board of directors but managers. If the managers of limited liability companies breach their obligations arising from the law and the articles of association due to their fault, they are liable for the damages caused to the company, shareholders, and company creditors. The liability of limited liability company shareholders towards third parties is limited; a shareholder's liability is confined to the amount of capital they have committed. Except for public debts, the shareholder is not responsible for the company's debts to third parties or to the company’s creditors.

Compliance with the formal requirements and notification obligations regarding the establishment of companies is not merely procedural but constitutes a fundamental condition for the validity of the company’s articles of association and the acquisition of legal personality by the company.

Art. 335 et seq. of the TCC regulates the principles regarding the establishment of a joint stock company, and Art. 573 et seq. regulates the principles regarding the establishment of a limited liability company. According to these provisions, in order to establish a company, the articles of association must be drawn up in writing, signed by the founders and notarized, and then registered with the Trade Registry and published in the Turkish Trade Registry Gazette. Failure to comply with the form and notification obligations stipulated during the establishment phase will cause the company to be deemed to have never been legally born. In this case, the persons who carry out transactions on behalf of the company will be personally liable for the transactions and these transactions will not have any consequences as if they were carried out on behalf of the company.

Yes, in Turkish legal system, the concept of “abuse” of legal personality is recognized and applied within the framework of legal doctrine and judicial decisions, although it is not directly included in the legal texts. This concept is particularly evaluated within the framework of the prohibition of abuse of right (Art. 2 of the Civil Code) and the rule of honesty.

In Turkish legal system, there is a principle of “piercing the corporate veil”, which corresponds to the phenomenon of “abuse of legal personality” and can be applied in such cases. This principle arises in cases where the independence of the legal entity is used in bad faith through abuse of right.

Piercing the corporate veil is an exceptional principle that allows direct liability to be imposed on the individual(s) behind the legal entity, which is normally considered a separate entity. According to this principle, in cases such as abuse of rights, tortious acts or evasion of creditors by hiding behind the veil of legal personality, the courts may ignore the legal entity and impose direct liability on the individual(s) behind it.

Although there is no explicit legal provision in Turkish law that directly incorporates this principle, it is used in practice based on various norms:

• Article 2 of the Turkish Civil Code - Rule of honesty and prohibition of abuse of right. (as discussed above),
• Turkish Code of Obligations Art. 19-27 - Limits of freedom of contract,
• TCC Art. 329 et seq. (joint stock companies), Art. 573 et seq. (limited liability companies) - Provisions on legal personality, and
• Supreme Court Precedents.

Under Turkish law, the general rule is that companies are recognized as separate legal entities, and the personal assets of shareholders are protected from the company’s debts. However, this protection is not absolute. In particular, if there is an abuse of the company’s legal personality, fraudulent transactions, deception, or unjust enrichment, courts may decide to “pierce the corporate veil.” In such cases, shareholders or managers can be held personally liable with their own assets.

Therefore, while the corporate shield protection is fundamental in Turkish law, it can be removed under certain conditions and unlawful circumstances. This serves as an important exception to ensure justice and the protection of creditors.

In Turkish law, the doctrine of the corporate shield intended to protect shareholders by limiting their liability to their capital contributions—is not granted unconditionally. This protection does not extend absolutely to shareholders who abuse the legal personality of the company by instrumentalizing the principle of limited liability merely to evade personal debts and obligations.

In cases where the corporate personality is misused particularly in instances of fraudulent conduct, deception, or unjust enrichment Turkish courts may pierce the corporate veil and impose direct liability on the individuals behind the legal entity. This exception serves to preserve the integrity of the legal system and ensure the protection of creditors rights. 

If controlling shareholders of a limited liability company use the company to serve their personal interests, they may be held liable both to the company itself and to the other shareholders. In cases where a shareholder diverts the company’s assets for their own benefit or uses company resources for personal gain, they may be obliged to compensate for the resulting damages. Furthermore, depending on the nature of the act, criminal liability may also arise. In particular, offences such as breach of trust, embezzlement, and similar misconduct may result in criminal sanctions under the provisions of the Turkish Penal Code. Therefore, it is a legal obligation for controlling shareholders to exercise their influence in accordance with the principles of good faith and loyalty, for the benefit of the company and the other shareholders.

Under Turkish law, shareholders are personally liable for negligent or malicious behavior that harms the interests of creditors. Courts may hold shareholders directly liable by removing the corporate shield in cases of abuse of the legal personality of the company. In addition, criminal sanctions may be imposed under the Turkish Penal Code in cases of gross negligence or willful misconduct. These mechanisms are provided for the protection of creditors and the fair operation of the legal order.

In Turkish law, the concepts of the “hidden partner” and the “de facto administrator” are specifically addressed within the framework of the TCC and the Enforcement and Bankruptcy Law (EBL). According to the TCC, where the legal personality of a company is abused, courts may apply the “piercing the corporate veil” doctrine and hold hidden partners or de facto administrators personally liable and may be held responsible for damages resulting from the negligent or wrongful performance of their duties. Their liability in limited liability companies is regulated under Articles 553 and subsequent provisions of the TCC. In the event of bankruptcy, if hidden partners or de facto administrators are found to have unlawfully exploited the company’s assets or engaged in fraudulent bankruptcy practices, they may be held personally liable under the relevant provisions of the EBL.

The principle of piercing the corporate veil has legal significance not only for individual companies, but also for group companies. In particular, in the event that the parent company uses its dominance over the subsidiary company in violation of the rule of good faith and pursues only its own interests, disregarding the interests of the subsidiary company, it is possible to pierce the veil of separate legal personality and hold the parent company liable. 

The Turkish Commercial Code clearly regulates that if the subsidiary company suffers damage as a result of the holding company's transactions aimed at benefiting the subsidiary company, this damage must be compensated. In case of abuse of dominance, not only does liability for damages arise, but also personal liability and, in some cases, criminal liability may arise for the executives involved in the transactions.

Therefore, within the context of group company relationships under Turkish law, the principle of piercing the corporate veil may be applied when a parent company abuses its control over a subsidiary. In such cases, despite the separate legal personality of the entities involved, direct liability may be imposed on the individuals or institutions that are in fact responsible for the transaction.