Notice Payment Under the Turkish Labor Code: Details and Application
The Turkish Labor Code (TLC) imposes regulations that restrict company partners from borrowing from the company to protect the financial structure of businesses and secure third-party creditors’ claims. This restriction, particularly for capital companies (joint-stock and limited liability companies), aims to protect the financial health of companies and prevent partners from using company resources for personal gain.
Here are the regulations and application details regarding the borrowing restriction under the TLC:
- Which Companies Are Covered by the Borrowing Restriction?
Article 358 of the Turkish Commercial Code limits the borrowing of shareholders (stockholders) from the company. This regulation covers:
- Joint-Stock Companies: According to Article 358 of the Turkish Commercial Code, shareholders of a joint-stock company cannot borrow from the company.
- Limited Liability Companies: In limited liability companies, according to the general provisions of the Turkish Commercial Code, it is prohibited for partners to borrow before fulfilling their capital contribution obligations.
This restriction aims to prevent the misuse of the company’s financial resources for purposes other than company activities.
- Exceptions to the Borrowing Restriction
Article 358 of the Turkish Commercial Code does not completely prohibit borrowing by shareholders but sets certain conditions under which an exception can be made. The borrowing restriction can be lifted in the following cases:
- Completion of Capital Commitment: If the shareholder has fully met their capital commitment, the borrowing restriction does not apply.
- Adequate Free Reserves in the Company: If the company’s free reserves and distributable profits are sufficient to cover the borrowed amount, the shareholder can borrow from the company.
Even if these conditions are met, the borrowing amount may be limited based on the company’s financial situation.
- Additional Regulations for Company Board Members
According to Articles 395 and 396 of the Turkish Commercial Code, board members of joint-stock companies cannot borrow from the company without approval from the general assembly. The borrowing by board members is restricted under the following conditions:
- Ban on Direct or Indirect Transactions with the Company: Board members are prohibited from entering into transactions with the company.
- Restriction on Using Company Resources for Personal Gain: This regulation aims to prevent board members from abusing their influence over the company.
- Consequences of Violating the Borrowing Restriction
The Turkish Commercial Code stipulates serious penalties for violating the borrowing restriction:
- Legal Penalties: If the company suffers damages, the shareholder or board member must compensate for the damages.
- Financial Liability: If borrowing occurs in violation of the law, the debt is recovered and recorded as a receivable of the company.
- Criminal Penalties: Violations of the relevant provisions of the Turkish Commercial Code may lead to criminal liability for company managers or officials.
Article 395/2 of the Turkish Commercial Code states: “… Otherwise, creditors of the company may directly pursue these individuals for the amount borrowed from the company in the company’s name.”
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
