One of the additional sources of financing for more successful operations in Belarus is to attract a loan from the owner (founder). The option has many advantages, however, it is necessary to understand how to organise this process, providing not only financial support but also improving financial situation while acting within the legal framework.
What are the advantages for the company
Borrowing money from the owner of a company can have several advantages:
1. Low interest rates or lack thereof
If the owner lends money without charging interest or with minimal interest, this significantly reduces the company’s financial burden compared to loans from banks or other creditors.
2. Flexibility and convenience
The loan agreement between the owner and the company can be much more flexible and convenient than the terms of bank loans. This may include a flexible repayment schedule or the possibility of restructuring, replacing the company’s obligation to repay the loan with another obligation.
3. No requirements for collateral and guarantees
Unlike bank loans, the owner may not require collateral or additional guarantees, simplifying the financing process.
4. Support and confidence
Financing from the owner can demonstrate faith in the company and its success, which can help strengthen employees’ internal trust and motivation.
5. The speed of receiving funds
Borrowing money from the owner can be a quick and effective way to get the company the necessary funds without going through bank lending procedures. The founder can provide loans to the company without restrictions on amounts and regularity.
However, it should also be remembered that such an approach may have drawbacks, such as potential conflicts of interest between the owner and the company, other owners, or limited opportunities to grow the company’s creditworthiness.
What are the features of a money loan in Belarus
1. Written form of the agreement
The loan agreement between the company and its owner is concluded in writing. A cash loan is expressed in the fact that one party (the lender) transfers money to the borrower. In turn, the borrower must return the same amount of money, which is called the “loan amount.”
2. Interest-bearing or interest-free loan
The loan can be interest-free. The fact that the loan is interest-free should be written in the loan agreement. Usually, owners give their companies an interest-free loan. If you do not write about interest in the contract and do not mention that the loan is interest-free, the loan will be “interest-bearing” by default. In this case, interest is charged at the refinancing rate of the National Bank of Belarus, which is set on the loan’s repayment day.
3. Terms of the agreement
In the loan agreement, you must specify the loan amount, the period for which the loan is issued, and the repayment procedure. The procedure and terms of repayment can be changed in the future. To do this, separate agreements are concluded with the loan agreement.
4. The possibility of a major deal
Depending on the amount of the loan, it is necessary to investigate whether the loan will be a major transaction for the business company. If this is the case, then it is necessary to carry out the procedure for the general meeting of participants to decide on a major transaction or approve such a transaction if it has already been completed. The advice of an experienced lawyer will help in researching this issue.
5. Features of an interest-free loan from a foreign founder
Interest-free loans from foreign founders are considered as foreign gratuitous assistance. In this case, the aid must be registered with the Department for Humanitarian Affairs of the Office of the President of the Republic of Belarus and used only for non-purposes permitted for sending foreign gratuitous aid. The money from the foreign founder must be transferred to a separate bank account in a Belarusian bank. Before registering assistance with the Department, money provided by a foreign founder cannot be used. You can consult with our lawyer to understand the specifics of the use and taxation of interest-free loans from foreign founders.
6. Loan currency
In Belarus, the loan is provided in Belarusian rubles. The loan agreement can specify the loan amount in Belarusian rubles or the equivalent of a foreign currency. In this case, we recommend selecting the exchange rate of this currency and the date on which it is used for the loan age.
A company can receive a loan in foreign currency from a foreign founder.
How to lend a company unrecognized dividends
A loan agreement helps the company’s owners direct the unpaid dividends (part of the profit) to the company’s development.
The company can distribute part of the profit after taxes to the owners. The decision on the distribution is made at the general meeting of the participants. Instead of receiving dividends, the company’s owners can loan the company money.
In this case, making a loan has its own characteristics, which can be found in consultation with an experienced lawyer. Design options are available:
- The general meeting of participants decides on the payment of dividends, and then the obligation to pay dividends is replaced by an obligation to repay loans by concluding an agreement on innovation.
- The General Meeting of Participants decides on allocating dividends as loans to the company. In this case, loan agreements are concluded between the company and the owners.
How can a company return a loan to the owner, and is it possible not to return it
The company has several opportunities to repay the loan to the owner. You can repay the loan not only with money. As a result of a number of agreements, the company’s obligations to repay the loan are terminated.
Termination of the loan with the help of compensation
It is possible to repay the loan, for example, with a property that belongs to the company. In this case, the legal registration of the refund includes the conclusion of an agreement on compensation, according to which, instead of returning money, the company transfers property to the owner or provides services, performs work for the owner. In the settlement agreement, it is necessary to determine the amount, timing and procedure for transferring the compensation.
Termination of the loan using a set-off
The company may have requirements for the owner. For example, he must contribute part of his share to the company’s authorized capital. This is possible when he has not fully contributed his share (in some cases, a certain period is given for making a total share) or when the owners have decided to increase the authorized capital.
The monetary claims of the founder to the company (on repayment of the loan) and the company to the founder (on depositing money into the authorized fund) are counterclaimed. Homogeneous counterclaims can be offset using a set-off agreement. Such an agreement is concluded when the deadline for repayment of the loan or contribution of a share to the authorized capital has come. As a result, the parties to the offset agreement (the company and the founder) do not make monetary payments to each other.
Termination of a loan with the help of an innovation
The innovation involves replacing the original obligation (repayment of the loan) with another obligation, which provides for a different method of execution or another subject. For example, instead of returning a loan to the founder, the company repays a bank loan that the founder must repay or transfers property to him. In this case, the company’s obligations to repay the loan cease from the moment of fulfilment of the settlement agreement: satisfaction of the obligation in a new way.
The transfer of property from the company to the founder and any change in the method of repayment of the loan often requires a decision at the general meeting of the company’s founders.
How we can be helpful if the founder needs to provide a loan to the company
Our lawyers are experienced specialists in the field of corporate law and taxation. We can:
- Advise you on the issue of granting a loan to the company from the founder, including a foreign one.
- Prepare a package of documents for the registration of loan relations between the company and the owners.
- Prepare a package of documents for repaying the loan, including when replacing the refund with another obligation.
- Calculate taxes when applying for a loan and its repayment in different ways.
- Represent your interests in government agencies, including when applying for an interest-free loan from a foreign founder.
Contact us
If you have any questions or disputes regarding the provision and repayment of a cash loan by the company’s founder, we will be happy to help! Our long-term experience in corporate law and taxation will help you resolve any disputes in this area.
- +37529366-44-77 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
