The best funding route depends on what the subsidiary needs the money for and how the investor expects to recover it. Equity, shareholder debt and bank borrowing create different rights and obligations. Decide the commercial purpose first, then review corporate, tax, currency and banking requirements together. A transfer reference alone does not establish the legal character of the funds.
Match the instrument to the funding need
Separate permanent capital, construction expenditure and short-term working capital. Consider whether the business can support scheduled repayments or needs capital that remains at risk. Model a downside case with delayed revenue. If a shareholder expects repayment on demand, test whether that expectation is consistent with the company’s financial position and other financing commitments before documenting the arrangement.
Document equity through the proper corporate steps
For a capital contribution or increase, identify the required decisions, subscription documents, payment evidence and registration steps for the company form. Review existing shareholders’ rights and the articles. Align the bank transfer with the approved transaction and accounting treatment. Equity is not ordinarily recoverable by simply issuing a repayment instruction; distributions or capital changes require their own legal and financial analysis.
Assess shareholder loans before transfer
Set out principal, currency, interest, maturity, repayment and any subordination. Review related-party pricing and tax consequences using the actual lender and borrower facts. For cross-border or foreign-currency funding, consult the current CBRT foreign-exchange framework and the handling bank on eligibility and documentation. Avoid assuming that a loan is exempt from restrictions merely because the lender belongs to the same group.
Read bank finance beyond the interest rate
Compare security, guarantees, covenants, drawdown conditions, fees and early repayment provisions. Identify restrictions on dividends, additional debt and related-party payments. A parent guarantee may transfer risk beyond the subsidiary. Coordinate the bank’s conditions with investment and procurement timing so the project does not commit expenditure before funding can be drawn. Record which consents are needed for later refinancing or a sale.
Plan repayment and reporting from day one
Prepare a funding register linking corporate approvals, contracts, bank records and accounting entries. Distinguish interest, principal, dividends and service payments; they should not be relabelled to bypass a restriction. Obtain a transaction-specific tax and treaty review before distributions or cross-border payments. Assign responsibility for notices, filings and covenant monitoring, with a clear process when the company’s cash position deteriorates.
Investor checklist
- Purpose and downside cash-flow model.
- Corporate approvals and instrument documents.
- Current currency and bank requirements.
- Tax, pricing, guarantees and covenant review.
- Repayment and reporting responsibility register.
For transaction-specific support, see our tax and trade finance services and investment legal advice.
Continue with: Korean–Turkish Industrial Joint Ventures: Legal Issues Before Signing; Green Project Finance in Turkey: Security Packages, Direct Agreements and Lender Rights.
Frequently asked questions
Is a shareholder loan always simpler than equity?
No. Currency, tax, documentation and repayment requirements can make it more complex.
Can capital be repaid as an ordinary invoice?
No. The payment must reflect its real legal and economic basis.
Should the bank be involved before the transfer?
Yes. Confirm the documentary and processing requirements before funds are sent.
