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Lifting the Legal Entity Veil in Joint Stock Companies

We will tell you about a legal concept that is not known in practice, which is called the Lifting or Lifting of the Legal Entity Veil in Turkish Law, and which is referred to by concepts such as “lifting the corporate veil”, “piercing the corporate veil” or “disregard of legal entity” in International Law. 

This concept refers to the cases where the partner is held responsible for the debts of the legal person due to the abuse of the legal personality veil, although there is no clear law or contract stipulating the liability of the partners of the legal person. 

As it is known, according to the Turkish Commercial Code and the Enforcement and Bankruptcy Law, joint stock companies have an independent personality from their partners and are responsible for their transactions with their own assets. In other words, as a rule, the shareholders of the joint stock company are liable to the company only with the capital shares they have committed, and the shareholders do not have any responsibility towards third parties due to the private law debts of the joint stock company. 

This situation creates a veil between joint stock company shareholders and third parties. However, in the event that, this legal personality veil is abused in a way that causes the emergence of situations contrary to equity, legal security, and legal order, the veil of this legal entity may be lifted and the shareholders of the joint stock company may be liable for the debts of the company with their own assets, together with the legal entity. 

We would like to point out that lifting the veil of legal personality is possible in exceptional cases, and this is possible in cases where the principle of separation is abused. In other words, the removal of the legal personality veil is based on the abuse of the right. These cases are determined by the jurisprudence, the lack of equities, which should be suitable for the purpose and volume of activity of the legal entity, the fact that the shareholders act against the rule of good faith in this situation, the dominance of the controlling partner or partners in the companies with the controlling shareholder, in the direction of their own interests, can cause harm to the creditors of the joint stock company. It may be decided to lift the veil of legal entity in cases where the joint stock company partners and the assets and organization of the legal entity are mixed with each other. 

In practice, the confusion between the joint stock company partners and the assets and organization of the legal entity is one of the leading situations that require the veil of the legal entity to be lifted. 

As a result of the 2. Article of the Turkish Civil Code, the institution of removing the veil of legal entity from the honesty rule and abuse of rights regulated in the article is an exceptional institution, and in case of existence of these exceptional cases, the responsibility of the company partners may be applied. 

The institution of lifting the veil is an institution that does not exist in the law, is determined by case law, and is adopted in practice, because of this, these situations are determined through case law. 

The Supreme Court of the 11. Civil Chamber, numbered 2016/5148, Decision numbered 2017/7084 and dated 11/12/2017, is one of the most recent decisions that clearly and concretely demonstrates the institution of removing the legal personality veil and the position of The Supreme Court in this regard. The case subject to the aforementioned case law of The Supreme Court is about a claim based on a check, and the plaintiff demanded that the legal personality veil be lifted and all defendants are held responsible for the check value. Supreme Court 11. Legal Department, when the provisions regarding the capital companies in the Turkish Commercial Code are observed, although the shareholders of the capital company do not have any responsibility to the creditors of the company due to the debts of the company, as a rule, the identification of the shareholder with the legal entity of the company, the mixing of the assets of the company partner with the assets of the company’s legal entity, It is an abuse of the right to hide behind the veil of the legal entity with malicious and calculated behaviors in order to avoid liability, the partner’s abuse of dominance in the company and hiding behind the veil of the legal entity against creditors is an abuse of right, and the principle of separation by the partner of the company during the payment of debts is in violation of the Turkish Civil Code. 2. and It has adopted the view that in cases such as the violation of Article 3, the corporate partner can be held responsible for the debt of the company by lifting the veil of the legal entity against the company partner, in other words, it is possible to hold the members responsible for the debt of the legal person by making the legal person responsible for the debts of the members, together with the theory of pulling the veil. .

A similar situation was pointed out in the decision numbered 2020/19-94 and 2020/358 K. of the General Assembly of the Supreme Court of Appeals, and it was decided that the condition of removing the legal personality veil diagonally was met. In the aforementioned decision, it said to stop malicious partners who use two separate companies and constantly charge one of them and use the other in a different way. The Supreme Court of Appeals General Assembly has determined that the founding partners of Company A and Company B are the same persons, that both companies operate together, and that the companies are trying to take advantage of the legal entity veil in order to smuggle goods from receivables, and it has come to the conclusion that the conditions for the veil to be lifted in terms of the concrete event have been met.

As it is seen, it is a situation that is not widely known in practice, but as an exception to the principle of separation of property and irresponsibility between the legal person and its members, it is a situation that arises in cases where the legal personality structure is abused against the law or when relying on the separation between the company and the shareholders violates the rule of good faith. 

To summarize in one sentence, if the persons forming the legal entity try to avoid responsibility by taking advantage of the separation principle provided by the legal entity, the legal personality veil can be lifted by the Judicial decisions. 

Rengin Canlı


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