In company law, the principle of protection of capital constitutes one of the fundamental structural principles of joint stock and limited liability companies. The principle of protection of capital aims to prevent the arbitrary use of company assets by shareholders and to protect the interests of company creditors. In Turkish law, one of the important regulations serving this principle is the prohibition on shareholders’ indebtedness to the company regulated under Article 358 of the Turkish Commercial Code. With the Turkish Commercial Code No. 6102, the indebtedness of shareholders to the company has been made subject to certain conditions in order to protect company assets, and violations of these conditions have been subjected to sanctions. This regulation particularly aims to prevent the practice frequently encountered in the past whereby shareholders used the company’s funds as a source of personal financing.
The Legal Nature of the Prohibition on Indebtedness to the Company
According to Article 358 of the TCC, shareholders may not become indebted to the company unless they have fully performed their due debts arising from their capital commitment and unless the company’s profit, together with its freely disposable reserves, is at a level sufficient to cover the losses of previous years. This regulation does not impose an absolute prohibition on indebtedness; rather, it allows indebtedness if certain conditions are met. Therefore, the provision constitutes a balancing mechanism aimed at both protecting the financial structure of the company and ensuring the flexibility required by commercial life.
In doctrine, it is accepted that this regulation is a natural consequence of the principle of capital protection. According to Arkan, in joint stock companies the company’s assets are independent from the shareholders, and the protection of these assets is essential for the continuity of the company. Similarly, Poroy and Tekinalp state that allowing shareholders to borrow from the company without limitation would create serious drawbacks in terms of the protection of company creditors.
Conditions of the Prohibition on Indebtedness
Pursuant to Article 358 of the TCC, two fundamental conditions must be fulfilled together for shareholders to become indebted to the company. The first is that the shareholder must have fully fulfilled their debt arising from the capital commitment. A shareholder cannot borrow from the company without paying their capital debt. This regulation aims to prevent a situation in which the shareholder is both indebted to and a creditor of the company.
The second condition is that the financial situation of the company must be suitable for lending. According to the law, the company’s profit, together with its freely disposable reserves, must be at a level sufficient to cover the losses of previous years. Thus, lending to shareholders during periods when the company is financially weak is prevented. This regulation constitutes an important safeguard serving the protection of company assets.
The Situation in Terms of Limited Liability Companies
Although Article 358 of the TCC is regulated with respect to joint stock companies, pursuant to Article 644 of the TCC, the relevant provision is also applied to limited liability companies. Therefore, partners of limited liability companies may not become indebted to the company unless the same conditions are met. This approach of the legislator aims to ensure unity among capital companies in terms of the protection of capital.
In practice, particularly in small and medium-sized enterprises, it is frequently encountered that shareholders use the company’s funds as if they were personal accounts. For this reason, regulations concerning the prohibition on indebtedness are of great importance in ensuring company discipline.
Consequences of the Violation of the Prohibition on Indebtedness
In the event of a violation of the prohibition on indebtedness to the company, both legal and criminal consequences may arise. According to Article 562 of the Turkish Commercial Code, if loans are granted to shareholders in violation of Article 358 of the TCC, those responsible may be subject to a judicial fine. The purpose of this sanction is to increase the effectiveness of the prohibition and to ensure that the management bodies of the company exercise the necessary diligence in this regard.
Moreover, transactions contrary to the prohibition on indebtedness may also give rise to the liability of members of the board of directors. If company assets are used in an unlawful manner, compensation for the damages suffered by the company may be claimed. In this context, it is of great importance that members of the board of directors exercise due care while performing their duties.
Discussions in Doctrine
There are various discussions in doctrine regarding Article 358 of the TCC. In particular, the amendments made by Law No. 6335 are at the center of these discussions. While in the initial regulation the indebtedness of shareholders to the company was subject to very strict limitations, the amendment allowed indebtedness under certain conditions.
Some authors argue that this amendment has weakened the principle of capital protection. On the other hand, another view argues that a certain degree of flexibility is necessary considering the needs of commercial life. These discussions show that there is a continuous search for balance in company law between the principle of capital protection and the practical needs of commercial life.
Conclusion
The prohibition on indebtedness to the company regulated under Article 358 of the Turkish Commercial Code is of great importance for the protection of company assets and the safeguarding of company creditors. With this regulation, it is intended to prevent shareholders from using company assets as a source of personal financing.
Although the legislator has allowed indebtedness under certain conditions, the management bodies of the company must observe the interests of the company when carrying out such transactions. In particular, the effective implementation of Article 358 of the TCC is of great importance in preventing situations frequently encountered in practice, such as shareholders using the company’s funds for personal purposes.