Obligation To Employ Or Contract A Lawyer On Continuous Basis For Joint Stock Companies In Turkey

ADMD Law Office
Petek Varol

A. Introduction

Pursuant to Article 1 of the Attorneyship Law No. 1136 (“Law No. 1136”) published at the Official Gazette with No. 13168, dated April 7, 1969, attorneyship is defined as "public and professional service ", and within the scope of the Article 35 of the Law No. 1136, services/works exclusive to attorneys are defined.

Accordingly, Article 35 states that providing opinion in legal matters; litigating and defending the rights of real persons and legal entities before courts, arbitrators, and other bodies invested with jurisdictional powers; and managing all documentation associated therewith are the sole prerogative of attorneys enrolled with bar associations.

Furthermore, in the third paragraph of the same Article, it is stated that "Every person with the capacity to sue may prepare the documents for his/her own lawsuit, file suit in person, and conduct his/her own case file before courts".

However, again in the same Article it is mentioned that “Joint-stock companies with a registered capital equal to 5 (five) times or more of the minimum amount stipulated in Article 272 of the Turkish Commercial Code and building cooperatives with a membership number of 100 (one-hundred) or more are obliged to have/employ a contracted lawyer. Legal entities failing to comply with the provisions of this paragraph will be penalized by public prosecutors with a fine in the gross amount of one month’s minimum wage, effective for workers in the industrial sector older than sixteen years of age on the date of the crime, for each month spent without a lawyer under contract’’.

Therefore, there is no general obligation to have a contracted lawyer for all Joint Stock Companies. In order to interpret the expression of the registered capital amount which is equal to 5 (five) times or more stipulated in the Law No. 1136, the relevant Article of the Turkish Commercial Code should be examined.

Although Article 35/3 of the Law No.1136 refers to Article 272 in the former Turkish Commercial Code Law No.6762, such provision is protected with the Article 332 of the new Turkish Commercial Code No. 6102 (“TCC”), published at the Official Gazette with No. 27846, dated February 14, 2011.

As per to Article 322 of the TCC, minimum capital requirement is TRL 50,000.- (fifty-thousand-Turkish-Liras) for Joint Stock Companies.

In summary, joint stock companies that have a capital of TRL 250,000.- (two-hundred-fifty-thousand-Turkish-Liras) or more either need to employ a lawyer in their payroll or need to contract a lawyer on continuous basis for legal services.

Furthermore, this requirement arises when:

• The legal entity status as a joint stock company with a registered capital of TRL 250,000.- or more is obtained; in other words after the registration of the incorporation of a joint stock company;
• After the registration of the general assembly resolution minute of the joint stock company at the trade registry regarding to capital increase that increases the capital amount as to TRL 250,000.- or more.

The mandatory lawyer requirement for the joint stock companies was introduced first at 2001 then amended at 2008 and its application became clear at the end of 2011 (following a Constitutional Court decision).

Constitutional Court decision dated June 30, 2011, No. 2010/10 E. - 2011/11 K. clarifies the reason behind Article 35/3 of the Law No. 1136 by stating that joint stock companies with large share capitals involve notable conflicts of interest among their shareholders, employees and creditors and society. Therefore, it is important for such companies to be operated in a manner that complies with the applicable laws and maintain a fair balance between these competing interests. Consequently, implementation of the Article 35/3 of the Law No. 1136 for Joint Stock Companies is not found inconsistent with the Constitution.

Accordingly, in recent years Bar Associations started to follow up this matter, issued complaints to district attorneys’ offices for penalization and the district attorney offices started to issue monetary penalties subject Misdemeanors Law; although many companies tried to invalidate such penalties with legal means of appeal, many failed and became subject to pay such penalties.

B. Administrative Fines Applied to Joint-Stock Companies Violating the Obligation to have a Contracted Attorney:

According to the Lawyers Minimum Fee Tariff published at the Official Gazette every year, the continuous legal service fee could not be below (net amount of) TRL 1,100.- per month for the year 2013; TRL 1,250.- for per month for the years 2014 and 2015; TRL 1,500 per month for the year 2016, TRL 1,650 per month for the year 2017 and TRL 1,815 per month for the year 2018.

However, in case the attorneyship fee is to be paid to a lawyer for the provided legal services is higher than annual fee amount foreseen by the Minimum Attorneyship Fee Tariff, the remaining amount should also be paid by the Joint Stock Company to the contracted lawyer.

In case the joint stock companies fail to obtain such legal services, a monetary penalty doubling the gross amount of such minimum monthly payment may be issued each year. This monetary penalty per annum for the year 2016 is TRL 39,528.-, TRL 42,660.- for 2017 and TRL 48,708.- for 2018.

Within the scope of this requirement, in case they receive a notice from a Bar Association, the Joint Stock Companies should reply within ten (10) days proving their contract with a lawyer (either in payroll or with an independent service contract) and the payments that they made.

Furthermore, if Joint Stock Companies have more than one (1) employed lawyer in their payroll, it is sufficient to submit only one (1) of such payroll information.

C. Legal Disputes

The governing jurisdiction is held by General Courts and the competent court of authority is (First Instance) Criminal Courts of Peace for resolving the legal disputes arising out of the administrative penalties issues against the joint stock companies that violate the obligation to have contracted lawyers.

Although the expression of “administrative penalty” may lead a to the perception that the settlement of the dispute should be held by Administrative Court jurisdiction, Court of Jurisdictional Dispute Decision No. 2014/1119 - E. 2014/1163 K. dated December 29, 2014 has clarified the governing jurisdiction as General Courts such legal disputes. This decision states that the Plaintiff as a Joint Stock Company was penalized by Prosecutor with an administrative fine however, such administrative fine is one of the administrative sanctions stated in the Article 16 of Misdemeanor Law No. 5326 and it was also noted that competent courts were not indicated for the objections to administrative fines by the Law No. 1136. Therefore, as per Article 17/4 of the Misdemeanor Law No. 5326, the provisions regarding to legal remedies against administrative sanctions shall be applicable unless otherwise specified. Accordingly, for the disputes arising out of such administrative sanctions, the governing jurisdiction is General Courts and the competent court is (First Instance) Criminal Courts of Peace in accordance with Article 27/1 of the Misdemeanor Law No. 5326.

D. Conclusion

Pursuant to Article 35/3 of the Legal Profession Law No. 1136, Joint stock companies that have a capital of TRL 250,000.- or more either need to employ a lawyer in their payroll or need to contract a lawyer on continuous basis for legal services. In case the joint stock companies fail to obtain such legal services, a monetary penalty shall be issued for each month spent without a lawyer under contract by public prosecutor within the territory of registered office of the company. This monetary penalty is TRL 3,555.- per month for the year 2017 and TRL 4,059.- per month for 2018.

Although it is criticized that such mandatory obligation imposed on Joint Stock Companies is not objective, legal and fair and it constitutes a contradiction to freedom of contract principle that is guaranteed under Constitution by forcing the companies to enter into agreement with lawyers, Constitutional Court decision dated June 30, 2011, No. 2010/10 E. and 2011/11 K. clarify this issue by stating that implementation of the Article 35/3 of the Law No. 1136 is not found inconsistent with the Constitution.

Therefore, joint stock companies that are subject to the obligation to employ or contract a lawyer, should do so in order to avoid such administrative fines.