Newsletter
DOUBTS OVER LEGALITY OF COMPANY LOANS
Article 15 of the Company Law provides that company funds may not be loaned to a share-holder or any other person, unless this is neces-sary to finance trading activities between com-panies.
But if an ROC company lends money to an overseas company in order for that company to purchase raw materials to produce goods for supply to the ROC company, and the ROC company's intention in making such a loan is to avoid interruption in supply of the goods in question, is this a case of a loan that is necessary to finance between companies? In a legal inter-pretation issued on 4 September 2001, the Min-istry of Economic Affairs (MOEA) stated that the question of whether a loan to another com-pany is necessary to finance trading activities must in principle be determined on the merits of each individual case. However, if a local com-pany can show that its provision of a loan is ab-solutely necessary for its continued procurement of the desired product, and the sum lent is ob-viously commensurate, then to that extent such a loan does not contravene Article 15 of the Company Law.