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ELECTRONIC CORPORATE GOVERNANCE FOR JOINT STOCK COMPANIES IN TURKEY – ELECTRONIC MEETINGS, ELECTRONIC SIGNATURES AND CHALLENGES
With the outbreak of Covid-19 and due to the measures taken by countries, it has been a challenge for companies to hold corporate meetings. As the world has become extremely digital as a repercussion of lockdowns and restrictions, the possibility of holding electronic general assembly (“e-GA”) meetings and electronic board of directors’ (“e-BoD”) meetings has been a subject of discussion in Turkey.
As per Turkish law, the aforementioned electronic meetings can be held by all equity companies provided that it is explicitly allowed in their articles of associations; however, in practice, they are mainly used by joint stock companies. Accordingly, the below Q&A is prepared to provide an overall understanding of the electronic systems that can be used by joint stock companies in Turkey.
1. What are the primary sources of law enabling joint stock companies to hold electronic meetings?
With the entry into force of the new Turkish Commercial Code numbered 6102 (“TCC”) on 1 July 2012, a series of changes have been adopted to modernize the Turkish corporate law introducing new rules towards easing and digitalizing the processes of general assembly (“GA”) and board of directors’ (“BoD”) meetings of joint stock companies.
The secondary legislation on electronic meetings which provides for further procedures and rules are as follows:
The Regulation on the General Assembly Meetings of Joint Stock Companies by Electronic Means (“Regulation”),
The Communiqué on Electronic Meetings of Commercial Companies other than the General Assembly Meetings of Joint-Stock Companies by Electronic Means (“Communiqué on e-BoD”);
The Communiqué on Electronic General Assembly Meeting System Applicable to General Assembly Meetings of Joint Stock Companies (“Communiqué on e-GA”).
What are the relevant authorities responsible for the electronic meetings?
Joint-stock companies which are required by law or wishing to hold electronic BoD or GA meetings must use the electronic platform and software provided by the Central Registry Agency (Merkezi Kayıt Kuruluşu) (“MKK”) which is in charge of the supervision of e-BoD and e-GA systems as per the Regulation and the Communiqué on e-BoD.
In addition, for the e-GA meetings of publicly-held joint-stock companies, system users appointed by the companies, are required to take an online course and certification which are provided by the Capital Market Boards of Turkey.
Finally, following the e-GA or e-BoD meeting, the decision may be subject to registration by the Trade Registry. It should be noted that the registration process requires in-person application to the Trade Registry, even if such decision is taken via online platform.
II.Electronic General Assembly Meetings
3. Are electronic general assembly meetings mandatory for certain types of companies? Is it possible for other companies to hold electronic general assembly meetings discretionally?
As per Article 13 of the Regulation, e-GA meetings are mandatory for joint stock companies listed in the stock exchange. For private joint-stock companies (which are not listed in the stock exchange), e-GA meetings are regulated as an alternative method. To be able to hold e-GA meetings, private joint-stock companies should insert a specific provision explicitly allowing such to hold e-GA meetingsto their articles of association. In other words, if the articles of association does not explicitly state that the company can hold its GA meetings electronically, it cannot make use of this procedure. In addition, technical requirements outlined in the Communiqué on e-GA must be met by all companies intending to hold e-GA meetings, as they are required to have certain IT infrastructure in place.
Is there a need to hold a physical general assembly together with the e-GA simultaneously?
Contrary to the general understanding, it is not possible to conduct a GA meeting only by electronic means. As per the Regulation, it is also necessary to hold a physical meeting which will be broadcasted via the e-GA system to the participants. Both meetings shall start at the same time and a ministry representative, in charge of the verification of the fulfilment of the conditions stated in the Communiqué on e-GA, must be present in the meeting room along with the president of the GA meeting.
In this respect, it is possible to participate in the GA meeting either electronically or physically. However the participants must indicate their preference through the e-GA system up to two days prior to the date of the GA meeting.
Who can electronically participate in the general assembly meetings held via e-GA system?
The Regulation defines the right holders who are entitled to attend the GA meetings of joint-stock companies via the e-GA system as, “the real or legal persons who have the right to participate in the GA meetings by electronic means in accordance with the provisions of the TCC”. Accordingly, the TCC makes a reference to the electronic participation of BoD members, shareholders and the authorized representatives of the shareholders via the e-GA system in Article 1528.
Further, Article 1527 of the TCC provides that, giving opinions, making proposals and voting electronically in the e-GA meetings of joint-stock companies shall bear the full legal consequences of participation in person.
What are the procedures for holding electronic general assembly meetings? How does the e-GA system work?
To convene an e-GA meeting, firstly the relevant software must be licensed from MKK simply by paying the subscription fee and it should be installed on company computers. In addition, an additional fee must be paid to a live broadcasting company (this service is currently provided by Medianova) which will broadcast the physical meeting to all participants attending the meeting via e-GA system.
Once the system is up and running, BoD members, shareholders and authorized representatives can register to the meeting with their valid electronic signatures two days prior to the GA meeting. Following the registration, registered participants will be required to login to the system on the meeting day and confirm their electronic/physical attendance to be reflected in the attendance list.
May shareholders appoint representatives who will participate in the e-GA meeting on behalf of them?
In principle, a notarised power of attorney is required for shareholders to appoint representatives for the general assembly meetings. However, with another reform introduced by the Regulation, an electronic power of attorney may be granted by the shareholder via the e-GA system. Accordingly, as regards to Article 8 of the Regulation, appointed representatives registered on the e-GA system may simply log in to the e-GA system with their secure electronic signatures and attend the general assembly on behalf of the shareholder without seeking a notarised power of attorney.
The representatives appointed by the shareholders are also able to vote via the e-GA system as per Article 11 of the Regulation. Authorized representatives may use their voting rights once the president of the meeting has informed that voting has started.
III. Electronic Board of Directors Meetings
Is it possible for companies to hold electronic board of directors meetings and/or issue board of directors’ decisions electronically under Turkish law?
According to Article 1527 of the TCC, BoD meetings of joint stock companies may be held electronically via the e-BoD system, on the condition that it is explicitly allowed in their articles of associations. The TCC allows companies to hold the entire BoD meeting electronically by the way of e-BoD system without the need for a physical meeting. Nevertheless, it is possible to conduct a physical BoD meeting together with the e-BoD meeting simultaneously.
Additionally, the e-BoD system allows the issuance of BoD decisions signed by secure electronic signatures without holding any meetings since Article 390 of the TCC provides the legal basis of issuing BoD decisions by way of written confirmation of a proposed BoD decision without the necessity of holding a physical meeting.
Regardless of the method selected for BoD meetings, quorums of meeting and decision either as it is regulated in TCC or as revised in the articles of association of company shall be abided by.
What are the requirements for using the e-BoD system? How does the e-BoD system work?
Article 6 of the Communiqué on Electronic BoD stipulates the wording that should be included in the articles of associations of companies wishing to use the e-BoD system. Companies, which can ensure the system and regulatory requirements, are given access to the e-BoD system by paying an annual license fee to MKK. In this regard, BoD members are required to have secure electronic signatures in order to participate in the e-BoD meetings and issue electronic BoD decisions via the e-BoD system.
Unlike the e-GA meetings, the BoD meetings can be held entirely through the e-BoD system and the companies are not required to hold a simultaneous physical BoD meeting. Also, the BoD members can directly log in to the e-BoD meeting via the online participation feature, thus eliminating the need for a live broadcasting company as in e-GA.
IV. Electronic Signatures
10. What are the relevant primary sources of law for electronic signatures? How is it different from regular signatures?
The Turkish Electronic Signature Law numbered 5070 and dated 23 January 2004 (“e-Signature Law”) was enacted in line with the European Union Directive on Electronic Signatures No.99/93 which was replaced by the Regulation No.910/2014 on electronic identification and trust services for electronic transactions in European Union (“EU Regulation on Electronic Identification”). According to Article 3/b of the e-Signature Law, an electronic signature is defined as “Data in electronic form that are atteched to other electronic data or linked logically to that electronic data and used for authentication”. Contrary to the EU Regulation on Electronic Identification, e-Signature Law does not make a distinction between simple, qualified and advanced electronic signatures and it only provides for one type of electronic signature which is secure electronic signature. Accordingly, an electronic signature qualifies to be a secure electronic signature which fulfills the following conditions as per Article 4 of the e-Signature Law:
exclusively connected to the owner of the signature,
exclusively formed by the electronic signature-forming device that is solely used by the signature owner,
allows to identify the signature’s owner via qualified electronic certificates and
allows to determine whether the electronically signed data is at a later stage altered or not.
Moreover, Article 5 of the e-Signature Law and Article 15 of the Turkish Code of Obligations stipulate that “A secure electronic signature shall have the same legal effect as that of a handwritten signature”.
The TCC also makes a reference to secure electronic signatures in Article 1526, which stipulates that the procedures/transactions which are deemed as obligatory under the TCC can be made by electronic means with secure electronic signatures such as using e-signatures via registered electronic mail (KEP) system for certain mandatory notifications between merchants. It is also regulated within the same provision of the TCC that authorized signatories of companies may use their secure electronic signatures while signing on behalf of the company, provided that the certificate of their e-signatures include the title of the company they represent.
With respect to the e-GA and e-BoD meetings, users of both systems are required to obtain and use a secure electronic signature to log in to the systems, to take necessary actions and to sign the relevant documents such as BoD decisions, GA meeting minutes and list of attendees. Also, Article 6 of the Regulation provides that, joint-stock companies holding e-GA meetings are required to submit the documents which must be presented for the review of the right holders as well as the documents regarding the GA agenda, such as annual financial reports for ordinary GA agenda, prior to the e-GA meeting through the e-GA system with secure electronic signatures.
How can companies obtain secure electronic signatures?
According to the e-Signature Law, a secure electronic signature can only be obtained from an electronic service provider authorized by the Turkish Information and Communication Technologies Authority (“ICTA”). An electronic certificate service provider, as per Article 8 of the e-Signature Law, refers to providers of the services relating to electronic certificates, time stamps and electronic signatures. Until now, only 6 providers are authorized to issue secure electronic signatures, namely E-Guven, Tubitak, Turk Trust, E-Tugra, EGMSM and E-Imza TR. The conclusive list of the providers can be found on the official website of the ICTA.
Pursuant to the e-Signature Law, electronic signature packages (containing qualified electronic certificate, smart card and a reader) can only be created for real persons and it can be simply purchased with a valid I.D. card and application form presented in person. In addition, third parties may also purchase the package by proxy, provided that they have a valid power of attorney which explicitly authorizes them for the application, purchase and receipt of electronic signature packages.
Alternatively, mobile signature may be used instead of e-signature which is also equivalent of a secure electronic signature, thus, a handwritten signature. Such method is considered easier and more practical than electronic signature and may be generated either on a mobile phone or on a SIM card. Until now, Vodafone, Turkcell and Turk Telekom telecommunication companies are eligible to provide mobile signatures to their users. It is not possible to obtain a mobile signature that is valid in Turkey from foreign telecom operators, thus person who wishes to obtain a mobile signature that is valid in Turkey should also have a mobile number obtained from a Turkish telecom provider.
V. Challenges in Practice and the Effects of COVID-19 Pandemic
12. What are the major challenges that companies face when holding electronic meetings?
While both the e-GA and e-BoD meetings are a great necessity, especially for multinational companies, there are certain complications and problems in practice, which will hopefully be solved in the near future. First of all, as explained in the above sections, there are technical requirements to be fulfilled and preparations to be completed in order to use these systems for electronic meetings. Especially e-GA system is quite complicated and holding an e-GA requires many steps such as attendance of the Ministry Representative and a live broadcasting company. Also, both the e-GA and e-BoD systems require the use of electronic signatures as documents issued via these systems will not bear handwritten signatures, thus, creating certain challenges before the governmental authorities such as notaries and trade registries.
In conclusion, electronic meeting systems have great potential to ease the burden of physical attendance to corporate meetings by BoD members and shareholders of companies. However, before companies opt to use these systems commonly, they should carefully fulfil the technical and legal requirements posed by the relevant legislations.
What are the main challenges faced by companies intending to hold electronic meetings during the ongoing Covid-19 pandemic?
As expected, travel restrictions and quarantine measures also affected the corporate procedures of the companies. Especially multinational companies whose BoD members are abroad and in different countries are/were not able to hold general assembly meetings and it has been inconvenient for them to issue BoD decisions.
Shortly after the start of the Covid-19 outbreak in Turkey, the Ministry of Commerce published an announcement regarding the general assemblies and electronic meeting of companies on 20 March 2020. This declaration allowed companies to hold e-GA or e-BoD meetings even if there is no such provision included in their articles of associations. Even though this was a step to ease the effects of the pandemic on corporate meetings, many companies and foreign BoD members residing abroad could not benefit such in full. In the light of the above explanations, we have highlighted some of the challenges below:
Implementing electronic meetings systems for the first time during the pandemic was not easy for companies due to the technical and legal conditions to be fulfilled.
Both systems require e-signatures obtained from ICTA approved service providers. For the shareholders and BoD members who did not already have valid e-signatures in Turkey, obtaining new e-signatures has been a challenge. Yet, the possibility of obtaining e-signatures via proxy easies the procedure for BoD members residing abroad.
The e-GA system still requires physical participation of certain participants such as the president of the GA meeting, a Ministry Representative and live broadcasting service providers.
As the trade registry systems do not allow submitting the GA documents online, application for registration needs to be made in person before the Trade Registry offices.
As a result, the companies that are not used to the electronic meeting systems were reluctant to go through all the procedures and expenses of electronic meetings during the pandemic.
In conclusion, while there are still complications surrounding electronic meetings, it is especially a good opportunity for Turkish subsidiaries of multi-national companies whose BoD members mostly consist of persons residing abroad. Electronic meetings may eliminate the need of travel for the BoD members who used to fly in just to attend corporate meetings. It may also ensure the undisturbed sequence of the corporate meetings especially when a situation arises which makes physical participation to meetings impossible such as a pandemic we experience today. However, in order to be prepared, companies wishing to be able to use the electronic meeting systems should complete the procedures and preparations before there is an actual need for electronic meetings.