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A Legal Vehicle in Institutionalization of Family Companies and
Transfer between Generations: Internal Directive
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Att. Ali Sami Er
An internal directive may constitute a stepping stone for family
companies to become institutionalized. A simple distribution of duties
to be provided in consideration of the accountability principle may
enable differentiation in decision-making processes, and may convert
the board of directors from an executive organ to a surveillance organ.
Moreover, it may enable the company to be transferred from genera-
tion to generation in a more planned manner. Although it may seem
hard to delegate management authorities, the main hardship stems
from the transfer of representation authorities. Each member of the
board of directors, from the second and third generations that are
almost deemed to be the heads in internal affairs, usually is not vested
with the representation authority of the company in external affairs.
However, the substructure of the transfer to the next generation may be
procured by an internal directive, which governs both management and
representation authorities.
What is an internal directive?
An internal directive is a regulation issued by the board of direc-
tors, governing the management of the company, and its representation
structure against third parties, which results in consequences, both
related and unrelated to the company.
What are the elements of an internal directive?
“Management of the company” means a comprehensible explana-
tion of the management process setting forth sharing of the duties,
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NEWSLETTER 2015
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Article of December 2015