Briefly;
-In case of a merger; if a company’s
equity (Company A) is negative, once this company is merged within another
company (Company B), the tax loss carried forward of Company A can’t be used in
Company B.
-In case of a thin cap issue; if the
company’s equity is negative, all interest and f/x loss related the loan
borrowed from a parent company should be considered as non-deductible expense
because all loan from related parties is regarded as thin cap.
When the necessary adjustments have been
done during tax calculation, there’s no risk in terms of tax legislation.
On the other hand, according to the Turkish
Commercial Code the board of the company having technical bankruptcy issue has
some responsibilities.
As per the Article 376 of the New
Turkish Commercial Code, in cases where half of a company’s capital and
statutory reserves has been lost based on the latest year-end financial
statements as a result of the losses recorded, the board of directors is
required to convene the general assembly and to present the actions to be taken
to improve the financial position of the company. In a situation where the
company has lost two thirds of its capital and statutory reserves based on the
latest year-end financial statements, the general assembly is required to
convene immediately and decide either to continue the operations with the
remaining 1/3 of the capital or to compensate for the loss through cash injection.
In case neither of these two steps is taken, the company shall be dissolved
automatically.
In the existence of certain indications
(i.e. such as inability to pay tax and other public payables, inability to pay
the salaries of the employees, inability to pay even minor amounts of
liabilities etc.) signifying the financially insolvent position of the company,
the board of directors shall draw up an interim balance sheet using the market
values of the assets as a basis to evaluate the company’s position and present
the concerning balance sheet to the auditor of the company. In any case, the
bankruptcy might be postponed by the commercial court, if the board of
directors presents a solid action plan for the recovery of the financial
position of the company.
Based on the above mentioned
information, I recommend you to increase the paid-in capital in a way that the
equity will be upper than the minimum threshold (1/2 or 1/3 of the total of the
paid-in capital and the statutory reserves) mentioned in the related article.
On the other hand, I experienced that
the capital increase procedure can be blocked by the trade registry office if
the company’s total equity is negative. I suggest in order removing it that:
-First of all, the fund which the
company having negative equity needs can be injected by the shareholders as
“capital advance” or “loss recovery fund” to the company and the amount is
booked to an equity account. (Please note that the bank can hold the fund in a
blockage account until the capital increase is approved by the trade registry.)
- Then, the capital increase procedure
can be started.
I recommend that the fund should be used
for capital increase as soon as possible in order to avoid potential tax risks.
of loan directly or indirectly received
from shareholders or persons related to shareholders for use in the business,
if the debt-to-equity (i.e. equity as of the beginning of the fiscal year)
ratio exceeds 3:1, the exceeding amount.
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