- within Energy and Natural Resources, Employment and HR and Environment topic(s)
A. Introduction
Every commercial enterprise shall have a headquarters. This matter is indirectly referred to under Article 40/1 of the Turkish Commercial Code (“TCC”), which provides that “Each merchant shall, within fifteen days from the opening date of its commercial enterprise, register and announce its commercial enterprise and the trade name it has selected with the trade registry of the place where the headquarters of the enterprise is located.”
The expansion of activities carried out within the scope of a commercial enterprise may make it difficult to conduct business from a single headquarters. In such cases, the merchant may prefer to conduct its business locally rather than through the headquarters. The method generally adopted in this respect is the opening of a branch affiliated with the headquarters of the commercial enterprise under the TCC.
Although the TCC does not provide a definition of a branch, Article 118/1 of the Trade Registry Regulation (“TRR”) defines branches as follows: “Places and sales stores affiliated with a commercial enterprise, whether located within the registry district of the headquarters or within another registry district, where industrial or commercial activities are carried out independently, regardless of whether they have independent capital or accounting, are branches.” Branches are also defined in various other regulations.
B. LEGAL STATUS OF BRANCHES
a. Branches Being Dependent on the Headquarters
A branch is affiliated with the headquarters as part of the commercial enterprise. Therefore, the branch and the headquarters must belong to the same real or legal person. A headquarters-branch relationship cannot exist between institutions having separate legal personality or between units belonging to different legal subjects.
Accordingly, the profits and losses of the branch, as well as the rights and obligations acquired through the branch, belong to the headquarters. Due to this dependency, the business policy of the headquarters and the branch must also be the same. The dependency of the branch on the headquarters indicates that the branch is legally a part of the headquarters enterprise and that, particularly in the internal relationship, important decisions concerning the branch are taken by the headquarters. However, this does not mean that the branch must obtain the approval of the headquarters for all of its transactions or that it cannot carry out transactions on its own. In particular, there is unity of business purpose between the branch and the headquarters, which pursue the same business policy.
The 6th Civil Chamber of the Court of Cassation, in its decision dated 14.12.2016 and numbered 2016/7517 E., 2016/7471 K., also ruled that branches are affiliated with the headquarters as part of commercial enterprises and that branches representing the company do not have separate legal personality. Accordingly, the profit and loss of the branch belong to the headquarters; likewise, the owner of the rights acquired and obligations undertaken through the branch is not the branch itself, but the enterprise to which it is affiliated.
Branches do not act in their own name and on their own account in the transactions they carry out; rather, they act directly in the name and on behalf of the real or legal person to which they are affiliated. In other words, branches are units that exercise the authority granted by the headquarters in the legal transactions they perform and through which the operator is directly represented.
Furthermore, Article 48/1 of the TCC provides that “Each branch shall use the trade name of its headquarters by indicating that it is a branch.” Therefore, third parties entering into legal transactions with a branch may understand, even from the trade name of the branch, that such place is affiliated with a headquarters and that the legal transactions carried out are performed in the name and on behalf of such headquarters.
The liability regime of a branch is based on the principle that it does not have legal personality separate from the headquarters. Although a branch is affiliated with the headquarters, it may have a certain degree of organizational independence and may establish commercial relations with third parties. However, this does not mean that the branch is an independent subject of rights and obligations. Rights and obligations arising from transactions carried out through the branch belong, as a rule, to the merchant or company to which the branch is affiliated. Therefore, liability arising from branch activities is directed not to the branch, which does not have a separate asset pool, but to the headquarters.
b. Branches Being Independent in External Relations
Although a branch is dependent on the headquarters, it is independent in external relations. Therefore, depending on the field of activity of the commercial enterprise, the branch is expected to carry out transactions of an essential nature with third parties on its own. Since branches perform the essential transactions of the type carried out by the headquarters, they may be regarded, in their location, almost as a projection of the headquarters enterprise.
Branches, which are legally affiliated with a headquarters, carry out transactions with third parties in many respects within the framework of the instructions of the headquarters or the authorities granted to them by the headquarters. Therefore, the element of conducting activities on their own does not grant branches unlimited freedom of activity. On the contrary, branches, which are bound by and serve the business policy of the headquarters, act within the scope of the authority granted to them by the headquarters.
The element of carrying out transactions on their own is closely connected with the representation authority of the branch. This is because only units that can independently perform, externally, the essential transactions carried out by the headquarters enterprise may have this characteristic.
In terms of freedom to carry out transactions on their own, branches are free to decide whether or not to enter into a legal transaction with third parties, to choose the person with whom they will transact, and to determine together with the counterparty the terms of the transaction. In the decisions of the Court of Cassation, it is accepted that places which do not have independent and separate commercial transactions with customers and do not act separately and independently from the headquarters do not qualify as branches. In order for a place to be considered a branch, it must be an organization which, although affiliated with the headquarters, is capable of entering into external relations with third parties and conducting commercial activities with a certain degree of independence.
C. Conclusion
Branches of capital companies are commercial organizations that operate in affiliation with the headquarters but are capable of acting with a certain degree of independence in external relations. The registration of a branch with the trade registry, the existence of separate accounting, or its ability to enter into transactions with third parties does not grant the branch legal personality separate from the headquarters.
Therefore, rights and obligations arising from transactions carried out through the branch belong, as a rule, to the capital company to which the branch is affiliated. Liability arising from branch activities is also directed not to the branch, which does not have a separate asset pool, but to the headquarters.
Court of Cassation decisions also show that, in determining whether a unit qualifies as a branch, in addition to its dependency on the headquarters, the elements of being able to transact with third parties in external relations and conducting commercial activities with a certain degree of independence are sought. In this context, it is accepted that places which do not act separately from the headquarters and do not have independent commercial transactions with customers do not qualify as branches.
In conclusion, a branch is an affiliated unit of a capital company which does not have a separate personality from the headquarters, but which may produce legal consequences in external relations in terms of representation and commercial activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
