Borrowing of shareholders from the joint stock company and vice versa – Shareholders

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According to the Turkish Commercial Code (“CCT”), some corporations are defined as corporations. Joint-stock companies are one such joint-stock company and fall under the “maintenance of share capital principle” of the TCC. The principle of maintenance of share capital requires full payment of the value of share capital pledged by shareholders to the company and, therefore, protection of the company’s creditors. In this context, since the shareholders already owe the capital payment to the joint stock company, this article will focus on how the shareholders can borrow money from the company and how the company can borrow money to the shareholder.

II. Shareholders’ debts to the Company

In accordance with article 358 of the CGI, shareholders are prohibited from borrowing from the company. Indeed, the relevant article is as follows:Shareholders cannot be indebted to the company unless they meet their outstanding obligations arising from capital commitments and the company’s profit, together with contingency reserves, is not at a level sufficient to cover losses from previous years”. In other words, according to the relevant article, two elements must be met for the shareholders to be able to borrow money from the company: (i) the shareholders must have paid all their debts arising from the capital commitment towards the company and (ii) with contingency reserves, the profit of the company must be at a level sufficient to cover the losses of the previous year. Therefore, in fact, the shareholders of the company are not prohibited from borrowing from the company, but certain conditions must be met for the indebtedness of the shareholders.

The TCC also regulates the penalty for non-compliance with the restrictions and, in accordance with Article 562/5 of the TCC, those who lend money to shareholders in violation of the borrowing prohibition will be punished with a judicial fine. at least 300 (three hundred) days. Given the corporate structure of the joint-stock company, the people likely to lend to the shareholder of the company are the members of the board of directors. Therefore, said sanction has been regulated for council members.

III. Indebtedness of the Company to the Shareholders

As briefly explained above, although the TCC regulates certain limitations on the indebtedness of the shareholders to the company, it does not include any restrictions or regulations regarding the indebtedness of the company to the shareholders. Therefore, it is possible for the company to borrow money from the shareholder.

Pursuant to Section 127 of the TCC, unless otherwise required by law; money, debts, securities, etc. will be accepted as capital for joint-stock companies. Therefore, shareholders’ claims on the company can also be added to the company as capital. Regarding this issue, the Ministry of Commerce, Directorate General of Internal Trade also issued a circular dated July 15, 2013 and numbered 67300147.431.04/ 559478/4979 – 5665 (“Circular”). In accordance with the Circular, in the event that the shareholder has a claim on the company, and this claim will be the subject of the capital increase, in the assessment of the claim, according to article 343 of the CGI, it may be subject to the expertise which has been appointed by the commercial court of the place of business, it is also appreciated that the submission of an accountant’s report or an expert’s report independent accountant and financial adviser or an inspection report from the inspector of a company subject to inspection concerning these assessments may be submitted.

On the other hand, if it is possible to meet the needs of the companies with the loans contracted with the shareholders, the said loans will also have to be made within certain limits. In fact, the concept of thin capitalization is explained in Article 12 of the Corporation Tax Act and in case the company borrows from its shareholders, it is stated that thin capitalization will come to the fore. once certain conditions are met. In accordance with the previous article, if the ratio of direct or indirect borrowings from shareholders or persons related to shareholders exceeds three times the equity of the borrowing company at any time during the accounting year in question, the excess share of l The loan will be considered disguised capital. Further details of thin capitalization issues should be discussed with local tax advisers.

IV. Conclusion

In joint-stock companies, it is possible for the shareholders of the company to borrow from the company and the company to borrow from the shareholders. However, as mentioned above, the shareholders of the company will first have to fulfill their share capital commitments, as they owe the company. In terms of company loans, the important question is whether the amount of the debt constitutes disguised capital under tax law.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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