A personnel file holds a single line: “Role: deputy general manager.” What does that line mean — what work does the person do, which decisions does he take alone, what does his pay buy? In family businesses the figure talked about longest is one sibling’s salary, and that is where the talking stops. To the family, putting a family member on the payroll is a single decision — how much should he take? — while in law the same payment starts three regimes at once: employment law, company law and tax law. Each looks at the same payroll line, asks its own question, and is not satisfied by the others’ answers.
When the answers fail to line up, the trouble surfaces years later, not in the month the money is paid: when a sibling leaves and claims the value of the years worked, when a tax inspection asks what work the salary bought, when an incoming investor reads the payroll line by line in due diligence. What is missing is the basis for the payment: the money went out regularly for years, and no document says what for.
Inside the family the subject is argued as a question of fairness; everyone outside reads it as a hiring decision. That distance does not close until you see where the three layers part company.
Was the family member hired, or simply included?
The first layer is employment law, and the one most easily skipped. Under the Labour Law (4857 sayılı İş Kanunu) what decides the matter is not the family tie but whether an employment relationship has in fact arisen: is the person doing a job, for pay, under the employer’s instructions? If so, its consequences follow even though nobody ever signed anything. “He is family in any event” carries no weight on the day the relationship ends.
A written contract looks like needless formality inside a family because it is read as mistrust. Its function is not trust but memory: writing down today what nobody will recall the same way in ten years. The file should carry at least the following.
- A job description. What the person does, which decisions he takes alone and what he may sign for belong in writing; a title such as deputy general manager is not a job description.
- A reporting line. Where nobody can say who the family member reports to or who appraises him, the company has an employee answerable to no one — a difficulty in employment law and in daily management alike.
- An exit scenario. How severance and notice would arise on termination, and whether the leaver’s shareholding is touched by it, should be settled in advance; the fiercest family arguments break out where those two capacities blur.
Holding shares does not displace the employment relationship, and the end of that relationship does not touch the rights of a shareholder. Written separately, the two capacities give two tables on the day of departure instead of one on which everything is negotiable at once. Loose arrangements — part-time, seasonal, helping out — leave the widest room for argument when things end.
A board seat and a job in the same person
The second layer is company law, and the picture changes where the family member also sits on the board of directors (yönetim kurulu). TTK Article 395 prohibits a board member from transacting with the company, for himself or for another, without the general assembly’s (genel kurul) permission, and prohibits him from borrowing from the company. Neither prohibition is theoretical here: the recurring items are lease, consultancy or supply deals with the company, and sums drawn from the till under a current account heading that quietly become permanent.
One person may be both board member and employee. The difficulty is that the boundary is never drawn. The attendance fee (huzur hakkı) for board membership and the salary for employment rest on separate decisions. Each is documented on its own. Merged into one payment, neither an inspector nor the siblings can later say which capacity the money answered to.
The answer we are offered here runs: we shall put it in the articles of association (esas sözleşme) and be done with it. TTK Article 340 does not allow that: the articles may depart from the Code’s provisions on joint stock companies only where the Code expressly permits it. Where the Code requires the general assembly’s permission, a clause letting family members transact freely produces no result. The duller route works: obtain the permission, write up the decision, keep it on file.
Is the pay at arm’s length, or a distribution of profit in disguise?
The third layer is tax. Article 13 of the Corporate Tax Law (5520 sayılı Kurumlar Vergisi Kanunu) requires consideration in transactions with related parties to meet the arm’s-length principle; consideration that departs from it opens the argument that profit has been distributed in disguised form through transfer pricing. A family member’s pay is the commonest subject of that argument, because whoever sets it and whoever receives it usually sit at the same dinner table.
There is one test: what would an outsider doing the same job with the same responsibility be paid? Whether the salary looks high to the family does not change the answer. In a manufacturing company the procurement manager’s pay follows the role, not the fact that its holder is the founder’s daughter. How the figure was arrived at has to be recorded: comparison with equivalent grades inside the company, offers received during recruitment, a salary band drawn up for the role.
Confusing pay with dividend is a separate problem. Under TTK Article 507 every shareholder participates in the net profit resolved to be distributed in proportion to his shareholding: the return on that capacity is the dividend, and it follows the shares. When family members hold unequal stakes and try to restore the balance through salaries — the elder holds more shares, so let the younger be paid more — the returns on two distinct capacities collapse into one item. It may feel fair inside the family; in company law and in tax law it is contestable at once, and impossible to justify to a shareholder who joins later.
A no-show salary and personal spending: the two easiest items to find
Two patterns are close to standard: a family member on the payroll who does no work, and personal spending settled from the company’s account. Both are easy to find, because the trace of each sits in records the company keeps itself.
The name on the payroll with no job behind it is given away by the silence of the records: no signature on any document, no mention in any decision, empty attendance and leave records, nobody reporting to him. Personal spending is given away by the opposite, an excess of records: who used the car, which business the trip served, why the flat was rented — questions left unanswered on the invoices. Nobody hid these items. They simply cannot be explained.
The cost is not only a tax cost. In a manufacturing company owned by three siblings, one brother’s wife had been on the payroll for years; to the other two it came to look like a share quietly taken from the company, and when a sale of shares was negotiated it was the first item the buyer took off the price. With a minority shareholder from outside the family the picture hardens: relatives on the payroll in a year with no dividend is a classic starting point of shareholder disputes.
Making a family member’s pay documentable
The easiest way to discuss this inside a family is to stop calling it a family decision and treat it as a hiring decision. Whatever the company produces when recruiting from outside, it produces here too: the definition of the role, the comparison against which pay was set, who approved it, who the person reports to, how performance is measured. Produced as ordinary corporate governance (kurumsal yönetim) rather than as a defence file, they shorten every argument that follows.
The family’s choices at the level of principle — who may work in the company and on what conditions, how much outside experience is expected, whether relatives may report to one another, which organ approves an appointment — can be gathered in a family constitution (aile anayasası). Set the expectation correctly, though: the family constitution is not regulated in the TTK and produces no result on its own as an instrument of company law. What binds is those principles once carried into the employment contract, the job description and the resolutions of the board and the general assembly.
A family member working in the business is legitimate, common and often good for the company: what someone who grew up beside the founder knows cannot be picked up from outside in a few years. The problem is that his work is written down nowhere. Handling the three layers separately — a written contract and job description for the employment relationship, the general assembly permission TTK Article 395 requires where board membership is involved, a written justification of arm’s-length pay for the salary — makes one payment defensible before three kinds of scrutiny. The benefit inside the family is human as much as legal: a written job description and a pay figure with a reason behind it turn a relative taking money from the company into an employee doing a job.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
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