Signing Authority and Internal Directives in Companies: A Practical Guide for Foreign-Owned Companies

Regulating signing authority in companies involves more than merely determining who may sign a contract. Approving an expenditure internally and signing the corresponding contract on behalf of the company may require different powers. Particularly in companies with foreign shareholders, it should not be assumed that the approval rules of the group headquarters will automatically be reflected in the representation structure of the Turkish company.

When establishing a workable authority framework, it is necessary to determine not only who may sign on behalf of the company, but also which transactions require prior approval and how compliance with this requirement will be verified. This allows effective control over important corporate decisions and obligations undertaken by the company without unnecessarily slowing down day-to-day operations.

This guide addresses restrictions on signing authority in Turkish joint stock and limited liability companies, the preparation of internal directives on representation, joint signing arrangements and prior approval procedures, with practical examples.

Table of contents

• What is the difference between signing authority and management authority in companies?
• Who represents joint stock and limited liability companies?
• Can signing authority be restricted by amount or type of transaction?
• What is an internal directive and what is it used for?
• How is an internal directive on representation prepared and how are authorised signatories appointed?
• What should be considered when establishing sole and joint signing arrangements?
• Do a signature circular and a power of attorney serve the same purpose?
• Can an authorised representative of a foreign parent company also represent its Turkish subsidiary?
• Can certain transactions be made subject to board of directors or general assembly approval?
• What practical problems can prior approval requirements create?
• How should a workable approval and signing authority framework be established?
• How should changes in authority and management liability be handled?
• Conclusion

What is the difference between signing authority and management authority in companies?

Decisions regarding which investments a company will make, from whom it will purchase goods or services and how its business will be conducted fall within the scope of management authority. Signing contracts on behalf of the company to implement these decisions and undertaking debts or obligations on its behalf, however, concern the authority to represent the company. Turkish Commercial Code No. 6102 (“TCC”) regulates the delegation of management and representation authority under separate provisions.

For example, the fact that a purchasing manager selects a supplier and approves an expenditure does not mean that the manager may also sign the contract on behalf of the company. The contract must be signed by the person or persons authorised under the company's representation arrangements. Accordingly, when preparing the internal allocation of responsibilities, the authority to approve a transaction and the authority to sign on behalf of the company should be considered together, but treated as separate powers.

Who represents joint stock and limited liability companies?

In joint stock companies, management and representation are the responsibility of the board of directors. Representation authority may be delegated to board members or externally appointed persons in accordance with statutory requirements; however, at least one board member must retain representation authority. Under Turkish trade registry practice, that board member's authority must be unrestricted in terms of subject matter and amount. This does not mean that the member must necessarily be authorised to sign alone; the company's representation arrangements may also require joint signatures.

In limited liability companies, management and representation are carried out by the managers within the framework established by the company's articles of association. Since at least one shareholder must have management and representation authority, it is not possible to delegate all powers to professional managers who are not shareholders. This requirement must also be taken into account when appointing the company's managers and authorised signatories.

For both company types, it should not be assumed that a person is authorised to sign on behalf of the company merely because they hold a position such as “General Manager”, “Finance Director” or “Country Manager”. What matters is whether valid representation authority has been granted to that person and which transactions it covers.

For further information on choosing a company type and the main differences at the incorporation stage, please see our guide to company formation in Türkiye.

Can signing authority be restricted by amount or type of transaction?

Companies may wish to prevent their employees from signing contracts above a certain amount or carrying out particular transactions, such as borrowing or providing security. However, not every restriction introduced for this purpose has the same legal effect vis-à-vis parties contracting with the company. As a general rule, internal restrictions on general representation authority cannot be asserted against third parties acting in good faith. In contrast, a joint signing requirement, a restriction of authority to the business of the head office or a particular branch, or monetary limits for certain transactions may also be effective in dealings with such third parties when registered with and published by the trade registry.

Article 371(7) of the TCC provides a separate mechanism for granting authority restricted by amount or type of transaction. This mechanism is based on appointing persons who meet the statutory requirements as commercial agents with limited authority or other merchant assistants and defining their powers in an internal directive on representation. This mechanism may also be used by limited liability companies pursuant to Article 629 of the TCC.

For example, including a provision in a board resolution stating that a manager who has unrestricted representation authority in terms of subject matter and amount “may not sign contracts exceeding EUR 100,000” does not, in itself, prevent contracts exceeding that amount from being binding on the company. To ensure that the monetary limit does not remain merely an internal instruction, it is necessary to determine which authorisation model is suitable for the person concerned and to complete the required internal directive, appointment and trade registry procedures together.

What is an internal directive and what is it used for?

Since companies may prepare documents for different purposes under the designation “internal directive”, it is important to identify precisely which document is being referred to when regulating signing authority. The mere existence of an internal directive does not mean that signing authority is also governed by that document.

An internal directive on the delegation of management regulates the allocation of responsibilities within the company. It specifies which manager is responsible for which duties, to whom they report and to whom they are accountable. In joint stock companies, the articles of association must also contain a provision permitting the delegation of management under Article 367 of the TCC.

An internal directive on representation, on the other hand, determines which types of transactions may be carried out on behalf of the company, up to which amounts and under which signing arrangements. A document prepared under the special statutory mechanism for granting restricted authority must be registered with the trade registry and published. In contrast, an internal directive that merely allocates management responsibilities within the company is generally not subject to this registration requirement.

Separately, the internal directive governing the general assembly regulates how the shareholders' meeting of a joint stock company is conducted, including rules on discussing agenda items, taking the floor and voting. Accordingly, this document does not replace an internal directive on representation that determines who may sign contracts on behalf of the company or the monetary limits applicable to signing authority.

How is an internal directive on representation prepared and how are authorised signatories appointed?

During the preparation stage, the company's articles of association, which establish its incorporation and operating rules, should be reviewed together with its existing signing authorities. The purpose of this review is to determine whether the existing provisions are sufficient for the proposed authority framework or whether an amendment to the articles of association is first required.

The relationship between the company and the persons to be granted authority is also important. In joint stock companies, the persons who may be granted restricted authority under this special mechanism are board members who do not have representation authority and employees working for the company under an employment contract. The relevant provision for limited liability companies covers persons employed by the company under an employment contract.

When preparing an internal directive on representation, defining the scope of the powers and identifying the persons who will exercise them should be treated as two separate stages. Instead of naming individuals, the internal directive specifies signing groups, the transactions these groups may carry out and the limits of their authority. The persons authorised to exercise each power are then identified through a separate appointment resolution. For example, while the internal directive may specify which purchasing contracts a particular signing group may sign, the individuals belonging to that group are identified in the appointment resolution. The required registration and publication procedures for the internal directive and appointments must also be completed.

Where monetary limits are included in the internal directive, it should also explain how those limits apply to the contract value. For example, suppose an employee is granted signing authority up to EUR 100,000 and the company wishes to enter into a three-year maintenance agreement under which it will pay EUR 40,000 annually. Although the annual payment is EUR 40,000, the company's total payment obligation over the three years is EUR 120,000. If the internal directive does not specify which amount is to be taken into account, it may become disputed whether the employee is authorised to sign that agreement.

To avoid such uncertainties, the internal directive should clarify how the total amount payable over the contract term is calculated and whether multiple purchase orders relating to the same procurement are to be assessed together. This makes the application of the specified monetary limits in day-to-day transactions understandable not only to the legal department, but also to the purchasing and finance teams.

What should be considered when establishing sole and joint signing arrangements?

When a person may sign alone on behalf of the company, this is referred to as sole signing authority. Where two or more designated persons must sign together, this is known as joint signing authority. For example, if a contract requires the signatures of two authorised representatives, the signature of only one will not suffice under the company's representation arrangements. A joint signing requirement that has been registered and published should therefore not be regarded merely as an internal control rule.

Under trade registry practice, arrangements granting the same person both unrestricted representation authority in terms of subject matter and amount and restricted representation authority under an internal directive are not accepted. For example, it is therefore not considered appropriate to appoint a person who already represents the company without restriction jointly with another authorised representative as an additional restricted signatory entitled to sign transactions below a specified amount alone. This distinction must be observed when establishing signing groups, and the current practice of the relevant trade registry office should also be checked.

Conversely, it is possible to require an employee with restricted authority to sign jointly with one of the unrestricted authorised representatives in order to carry out certain transactions. Under such an arrangement, the employee acts within the limits granted to them, while the general representation arrangements applicable to the co-signing manager in other transactions do not automatically change. The internal directive should therefore clearly identify which signing groups may act jointly for which transactions.

Do a signature circular and a power of attorney serve the same purpose?

Although both a signature circular and a power of attorney relate to signing on behalf of the company, they do not serve the same purpose. A signature circular (imza sirküleri) is a document evidencing existing representation authority and containing a specimen signature; it does not, by itself, create new authority. Therefore, when examining the authority of a person who is to sign a contract, not only the signature appearing in the circular, but also the underlying resolutions and current trade registry records should be reviewed.

A power of attorney, by contrast, evidences authority granted to another person to carry out specified transactions. For example, where a person may represent the company only jointly with another authorised representative, that person cannot eliminate the joint signing requirement by independently issuing a power of attorney on behalf of the company before a notary. The fact that the power of attorney has been executed before a notary does not remedy a lack of authority on the part of the person granting it. It is necessary to verify whether the person granting the power of attorney is authorised to do so and whether additional specific authority is required for the transaction concerned.

Similarly, an employee who has been granted restricted authority under an internal directive may not grant another person general authority over all the company's affairs. Whether such an employee may grant a power of attorney should be assessed based on whether they have been given that right and whether the power of attorney to be granted remains within the limits of their own authority.

Can an authorised representative of a foreign parent company also represent its Turkish subsidiary?

The foreign parent company and its Turkish subsidiary are separate legal entities. Accordingly, a person who is a manager or authorised signatory of the parent company must also hold valid authority in respect of the Turkish company in order to sign contracts on its behalf. For example, approval of an investment from a budgetary perspective by the finance manager at the foreign headquarters does not mean that this manager may sign the investment agreement on behalf of the Turkish company.

When implementing group policies in Türkiye, it is necessary to determine separately which transactions require headquarters approval and who may sign contracts on behalf of the Turkish company. Showing both pieces of information together in an authority matrix helps prevent employees from confusing approval by email with signing authority and prevents transactions from being carried out by the wrong person.

Can certain transactions be made subject to board of directors or general assembly approval?

In companies with foreign shareholders, it is common to seek to make investments of a certain size, borrowing transactions or the provision of security subject to approval by the board of directors or general assembly. The purpose is to ensure that important decisions are not left solely to the managers responsible for day-to-day operations. However, when establishing such arrangements, a distinction must be made between requiring prior approval and preventing a contract signed without approval from becoming binding on the company.

For example, a rule may be introduced stating that “contracts exceeding EUR 250,000 require board of directors approval” in respect of a manager who has sole and unrestricted representation authority in terms of subject matter and amount. Nevertheless, if the manager signs a contract without obtaining the required approval, the company may not be able to rely solely on its internal rule to argue against a counterparty acting in good faith that the contract is not binding on the company. A breach of an internal rule and the binding effect of a contract in external relations must be assessed separately.

The manner in which an approval mechanism can be structured also varies according to company type. In limited liability companies, Article 625(2) of the TCC expressly permits the articles of association to provide that managers must submit certain decisions to the general assembly for approval. However, approval by the general assembly does not eliminate or limit the managers' liability.

In joint stock companies, the duties that the board of directors is legally required to perform itself and the powers reserved to the general assembly must be taken into account. It is not possible to establish a structure in which all management decisions belonging to the board of directors are transferred to the general assembly. In addition, transactions for which the law already requires a specific board of directors or general assembly resolution must be considered separately from the approval list established by the company at its own discretion.

For more information on the contractual framework governing management and approval mechanisms agreed between shareholders, please also see our article on shareholders' agreements under Turkish law.

What practical problems can prior approval requirements create?

If the list of transactions requiring approval is unnecessarily broad, even day-to-day business operations may become dependent on repeated board of directors or general assembly resolutions. This may result in missed quotation deadlines, delayed contracts or uncertainty among teams as to when approval must be requested. In particular, expressions such as “material contracts” and “transactions outside the ordinary course of business” should be clarified through examples and monetary thresholds.

For example, is approval of the annual budget sufficient for the purchase of machinery included in that budget, or must a further resolution be adopted before the purchase agreement is signed? If the same investment is divided into several purchase orders, should each order be assessed separately? If these questions remain unanswered, a policy designed for control purposes may become a document requiring renewed interpretation for every transaction.

Another issue arises when headquarters approval is confused with a decision of the Turkish company. Approval received by email from group headquarters does not automatically replace a duly adopted board of directors or general assembly resolution where such a resolution is required. Accordingly, it is necessary to determine in advance not only who will grant approval, but also through which document and decision-making procedure that approval must be obtained.

How should a workable approval and signing authority framework be established?

To establish an effective approval system, the company's internal decision-making process, signing authorities and checks to be conducted before signing must be designed together. This allows necessary oversight of important transactions to be maintained while enabling ordinary business activities to continue without requiring a new decision at every stage.

Transactions requiring approval should be clearly and measurably defined

Rather than requiring separate approval for every contract, companies should identify the transaction types and amounts that are genuinely important to them. For example, investments outside the approved budget, borrowings above a certain amount or security provided for the debts of other companies may be made subject to separate approval. The same framework should clarify which transactions are sufficiently covered by the previously approved budget and which require an additional resolution.

If the documents to be attached to an approval request, the person responsible for preparing it and the stage at which it must be completed are specified, the process will not remain merely a list of prohibitions. Instead, it will establish a working framework in which purchasing, finance and management teams can apply the same rules to the same transaction.

Internal approval requirements should be supported by appropriate representation arrangements

If the objective is to prevent a single person from binding the company to a significant obligation without approval, preparing an approval list alone is insufficient. The possibility of requiring joint signatures under the company's general representation arrangements and granting restricted authority to employees who meet the statutory requirements for day-to-day transactions may be considered together. This allows routine purchases to be carried out within specified limits while requiring additional signatures and controls for larger transactions.

Within this structure, company procedures may require the person providing the second signature to verify whether the necessary approval has been obtained. However, the fact that two authorised representatives sign jointly does not replace a separately required board of directors or general assembly resolution. Adopting the corporate resolution and subsequently signing the contract on the basis of that resolution are separate but complementary stages.

The decision-making process should not be made unnecessarily burdensome

Not every approval requires all authorised persons to attend a physical meeting. Under certain conditions, the TCC permits boards of directors of joint stock companies to adopt resolutions through written approval without holding a meeting. Limited liability companies also have a mechanism for adopting general assembly resolutions by obtaining the shareholders' written approval. Particularly in companies where authorised persons are located in different countries, using these options may simplify the process.

For this purpose, it is useful to prepare draft resolutions in advance, identify who will track the signatures and ensure that completed resolutions are properly retained. When using written resolution procedures, the statutory requirements must still be observed; ordinary email correspondence should not, by itself, be assumed to constitute a valid corporate resolution.

For certain contracts, approval may also be established as a contractual condition

Where the company does not wish to become contractually bound in an important transaction before the required approval has been obtained, it may also be considered to agree with the counterparty that approval will be a condition for the contract to enter into force. For example, where appropriate in view of the nature of the transaction, it may be expressly agreed that an investment agreement will enter into force only after approval by the board of directors. In that case, the approval requirement ceases to be merely an internal rule and becomes part of the contract accepted by the parties.

Such a provision should specify which approval must be obtained, within what period and what the parties will do if approval is not granted. It should also be borne in mind that a party may not prevent the fulfilment of the approval condition in breach of the principle of good faith in order to avoid the contract. Rather than a general solution for every routine transaction, this approach is an option to be considered separately for important contracts.

How should changes in authority and management liability be handled?

The authority framework should be updated when employees or the company's needs change. If the monetary limits, transaction types or signing groups under an internal directive on representation are to be amended, merely updating the company's internal document is insufficient. Under trade registry practice, the existing directive is generally revoked and the updated document, bearing a new date and number, is registered and published. The applicable procedure should also be checked when preparing the amendment.

When an authorised signatory leaves the company or their authority is revoked, notifications to banks and relevant business partners should be planned alongside the required resolutions and trade registry procedures. The legal, finance and information technology teams should work to a common timetable to ensure that access to online banking, payment approval systems and contract management systems does not remain active.

It should also be remembered that delegating authority does not eliminate all liability of the company's directors or managers. While the board of directors retains its duties of high-level management and supervision, Article 371(7) of the TCC also provides for the joint and several liability of board members for damage caused to the company and third parties by persons granted restricted authority. In other words, board members may also face compensation claims even where a transaction has been entrusted to an employee. Signing authority should therefore be supported by regular reporting and transaction controls.

Conclusion

Establishing a workable signing authority framework in companies with foreign shareholders is not simply a matter of translating the group headquarters' authority matrix into Turkish. The decision-making and contract-signing processes must be aligned, taking into account the company type, the position of the persons to be authorised and its day-to-day operations.

Requiring prior approval for certain transactions may form part of this framework. However, the real objective is not merely to include a provision stating that “prior approval must be obtained”, but to clearly determine, in a way that everyone can apply, who will make which decision, who may sign on behalf of the company and how the necessary approval will be verified before the transaction.

GEMS Schindhelm advises clients on the assessment of companies' management and representation structures, the regulation of signing authority, the preparation of internal directives and related board of directors, managers' and general assembly resolutions, the adaptation of foreign group policies to Turkish law and the management of trade registry procedures. Please contact our team with any questions regarding this subject.