06 Jun

Majority of companies in Turkey are family owned companies as their equivalents around the world. It is predicted that over 70 % of companies are family owned companies in the world. Family owned companies differ from other companies by their policies and management. Mostly, in family owned companies “the boss” (mostly the founding partner of the company) takes over whole management of the company and wants to carry out all business by his hand even daily products purchase and expenses.  Since the founding partner carries out all business and holds power, company becomes an asset for the founding partner and his family; therefore, it becomes usual that company’s assets and resources can be used freely by the family members who own the company. Borrowing money from the company or application of a fund can be examples to this.

Borrowing from company or shareholders can lead to several results in scope of corporate and income tax and commercial code.

Relationship among shareholders and company is regulated under Corporate Tax Legislation. Pursuant to corporate tax legislation, a company can borrow from shareholders but it is limited due to preventing tax loss. The limit that regulated by law is triple the amount of equity capital of the company.

In regard to Income Tax Legislation; differences against the enterprise borne due to improper and unmatching real market value and value used at the sale or purchase of goods violating “value of equal principle” for the transaction with related parties by the enterprise owner are regarded as withdrawn from the enterprise. Enterprise owner’s wife, ancestors, descendants, third level in laws, directly or indirectly related firms, and partner’s of those firms, other firms under the management, supervision and control by the means if capital is regarded as affiliated. At the application of this clause, production and construction, renting or leasing, borrowing and lending money, transactions require salary; bonus and kind payments are regarded as purchase or sale of goods and services in any case. Affiliated parties taxation operation will be corrected if the differences regarded as withdrawn from the enterprise are calculated at the declared tax base for income or corporate tax by the affiliated party.

Turkish Commercial Code limits shareholders to borrow money from their company. Shareholders cannot become indebted to the company unless they fulfill the debts arises from capital subscription and unless the company’s earnings, including non-dedicated reverses, meet loss from previous year. Therefore, shareholders can borrow money from company under these two conditions.

Current Commercial Code article offers much easier way than previous article. By this amendment, borrowing does not become an unlimited resolution however in case of emergency it is an opportunity for shareholders to meet their urgent needs. In addition, long term, high rate and unsecured borrowing will be against the letter of the law. In Commercial Code, urgent needs or emergency concepts are not described so that these rights that are ensured by these articles can be abused easily. Persons, who infringe this law and borrow money from company, are sentenced due to malpractice provisions under Criminal Law.


Herdem Law Firm, Istanbul Turkey

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