Individual Or Corporate Lending Contracts (Shareholder Loans And Loans To Shareholders)

Author: Asl? ÇA?LAR

Apart from loan contracts designated for financial entities,

Articles 306 - 312 of the Turkish Code of Obligations

(TCO) define money lending contracts (individual loan

contracts). Although seemingly unpopular, the contract type for

money lending becomes center of attention for shareholder and

inter-company loans since that is their only legal ground when

inspected thoroughly.

Under general conception, money lending business is

specifically reserved for banks and financial institutions that

are regulated and licensed. However individuals and companies

other than banks could also benefit from loan or money lending

contracts as well. The question then becomes how?

Lending by Companies

Basically the main components of the loan contract are: the

creditor, the borrower, the loan and the terms of repayment

including due date and interest. However this does not mean

that any company may loan money to another under freely

designated terms containing such components.

It is disputed in legal community whether companies may

provide loans to other companies and/or individuals (most of

the times their shareholders), however technically and in a

very limited manner and for limited number of times which

should not seemingly convert the field of activity of such

company into money lending business which is regulated and

licensed, they can.

There shall always be a fair interest rate and the company

management authorizing such a money loan is responsible to its

shareholders and to third parties based on their expectations

over the loss of capital subject to their credits. Therefore

the management is better off by asking for collateral as well.

Since the money loaned will have to remain in company books

under assets and any interest obtained or lost is subject to

taxation companies do not often enter into such arrangements

where they become creditors.

Companies with Foreign Investors

There is an exception to such unclear and burdensome

creditor status for companies. The companies with foreign

investments are allowed to lend money under a special regime

provided by the 12th section of the 11th

Article titled 'Loans' of a new directive dated

February 28, 2008 based on the Council of Ministers'

Decision No.32 on the Protection of Turkish Currency.

This section of the Directive states, "Residents of

Turkey can provide loans to companies abroad that they are

shareholders to, to their parent or group companies abroad in

Turkish currency or any...