Newsletter
LOANS TO TRADING PARTNERS NOT SUBJECT TO COMPANY LENDING LIMIT
Prior to the 2001 amendments, the Company Act strictly limited the lending of a company's funds, by providing that except where lending was necessary to finance business transactions be-tween companies, a company was not permitted to make loans to a shareholder or to any other person or entity. The amended Company Act allows companies greater flexibility in their fi-nancing and allocation of funds: as long as a company has business relations with another company or firm, or has a need to provide short-term financing to another company or firm, it may lend funds to the other enterprise.
However, the amended Act also provides that funds loaned to another enterprise due to a need for short-term financing must not exceed 40% of the net worth of the company extending the loan. There has been considerable doubt in practice as to whether loans to an enterprise with which a company has business relations are subject to the same limit of 40% of the lending company's net worth. In an interpretation issued on 1 June 2004, the Ministry of Economic Affairs stated that such loans are not subject to this 40% limit.