Equity Company Shareholders Providing Loans to the Company 101
Private equity companies are structures that form the backbone of commercial life and carry out a significant portion of economic activities. Undoubtedly, capital is the most critical element for these companies to maintain their operations.
However, sometimes the financial needs of companies cannot be met through initial capital or equity. At this point, shareholder loans to the company emerge as a common solution. The reasons for shareholders providing loans to the company may include insufficient cash flow or a preference not to increase capital due to current circumstances.
When a private equity company faces financial difficulties, loans from shareholders offer several advantages. Compared to bank loans or other financing sources, this method provides a faster solution. Since shareholder loans are typically extended under more favorable terms than market interest rates, they can reduce the company's financing costs. Financing through internal sources instead of external borrowing prevents the transfer of control to third parties.
However, pursuant to the Turkish Corporate Tax Law, loans obtained from shareholders are classified as “hidden capital” if the borrowed funds are utilized in the company and the amount exceeds three times the company’s equity at any point during the fiscal period. In such cases, there may be tax disadvantages for the company. Therefore, it is crucial to pay attention to these limits.
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