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FINANCIAL LEASING, FACTORING AND FINANCE COMPANIES

FINANCIAL LEASING, FACTORING AND FINANCE COMPANIES. Prof.Dr.Huriye Kubilay. LEGISLATION. Act on Financial Leasing, Factoring and Finance companies Number of the Act : 6361 Acceptance Date : 21.11.2012 Official Gazette : 13.12.2012, Nu. 28496

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FINANCIAL LEASING, FACTORING AND FINANCE COMPANIES

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  1. FINANCIAL LEASING, FACTORING AND FINANCE COMPANIES Prof.Dr.Huriye Kubilay

  2. LEGISLATION • Act on Financial Leasing, Factoringand Finance companies Number of theAct: 6361 AcceptanceDate: 21.11.2012 OfficialGazette: 13.12.2012, Nu. 28496 • Regulation on Incorporationand Activity Principles of Financial Leasing, FactoringandFinancingCompanies, OG 24.04.2013, 28627

  3. Financial Leasing Contract Financial Leasing • A Finance Leasing is a lease that is primarily a method of raising finance to pay for assets, rather than a genuine rental. Definations Lessor: The owner of an asset that is leased under an agreement to the lessee. The lessee makes one-time or periodic payments to the lessor in return for the use of the asset. Lessee:The person renting property under a written lease from the owner (lessor).

  4. LESSOR • Participationbanks • Development andinvestmentbanks • Financial Leasing Companies

  5. Financial Leasing Contract • AFinancial Leasing Contractis an agreement where the lessorreceiveslease payments to cover its ownership costs. Thelessee is responsible for maintenance, insurance, and taxes. • An OperatingLease on the other hand, is a lease where the lessor retains ownership of the asset. This means that the risk and rewards of ownership has not been transferred to the lessee.

  6. Financial Leasing Provides • Toassigntitle of propertytolessee at theend of leasing period, • Togrant a purchaserightwithlessthancurrent market price • Whethertheperiod of leasing mustcovermorethan 80% of economic life of goodsorthecurrent total value of rentalpayments, whichwill be madeaccordingtofinancial leasing contract, mustconsist of a biggervaluethan 90% of currentprice of thegoods.

  7. Financial Leasing Contract It is a commercial arrangement where: • the lessee (customer or borrower) will select an asset (equipment, vehicle, software); • the lessor (finance company) will purchase that asset; • the lessee will have use of that asset during the lease; • the lessee will pay a series of rentals or installments for the use of that asset;

  8. Financial Leasing Contract • the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee; • the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price); • The finance company is the legal owner of the asset during duration of the lease. • However the lessee has control over the asset providing them the benefits and risks of (economic) ownership.

  9. Financial Leasing Contract Advantages • It offers fixed rate financing. As the costs go up over five years, you still pay the same rate as when you began the lease. • There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment. • Leasing better utilizes equipment; you lease and pay for equipment only for the time you need it. • You can keep upgrading; as new equipment becomes available you can upgrade to the latest models each time your lease ends. • it is easier to obtain lease financing than loans from commercial lenders. • It offers potential tax benefits depending on how the lease is structured.

  10. Financial Leasing Contract Disadvantages • You have an obligation to continue making payments. Typically, leases may not be terminated before the original term is completed. • You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment has depreciated significantly. • Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease.

  11. Association of Financial Leasing, Factoringand Finance Companies • Financial leasing Companies (31) • FactoringCompanies (78) • Finance Companies (13) • Financial Holding/GroupCompanies (3)

  12. Association of Financial Leasing, Factoringand Finance Companies It is a professionalpublicinstitutionwhich has legal entity.

  13. Establishmentrequirements • Establishing as jointstockcorporationandthenumber of founderscannot be lessthanfive. • Sharecertificatesmust be issued in cashandto a specificperson. • Commercial firm name mustincludeone of terms; «Financial Leasing Company», «FactoringCompany» or «Finance Company» • FoundersmusthaveallrequirementsincludedthisAct.

  14. Members of Board of Directors musthaveprofessionalexperiencewhich is regulatedbycorporategovernanceprovisions of thisAct. • Minimum paidcapital 20 million TL • Articles of associationcomplingwiththeprovisions of thisAct • Havingtransparentandclearcorporate body whichwill not preventefficientcontrol of BankingRegulationandSupervisionAgency

  15. Submission of workingplans, projectsrelatedtofinancial body of thecorporation, budget plan forfirstthreeyearsandactivityprogrammewhichpresentsstructuralorganisation of thecorporation.

  16. PERMISSIONS FOR ESTABLISHMENT AND OPERATION • PermissionforestablishmentfromBankingRegulationandSupervision Board (BDDK) • PermissionforoperationfromBankingRegulationandSupervision Board (BDDK)

  17. BRANCHES • Companiesareallowedtoopenbranch in Turkeyorabroad. Companiescannotmakeagencycontracts.

  18. RESTRICTED ACTIVITIES • Works andtransactionswhichcompaniescannotexecuteareenumerated in theAct (Art.9).

  19. ACQUIRING AND ASSIGNING OF SHARES • Sometransactionsrelatedtoacquiringandassigning of sharesaredepended on permission of BDDK.

  20. MERGER, TRANSFER, DIVISION, DISSOLUTION/WINDING UP • BDDK definestheprocedureandprinciplesrelatedtopermission in case of merger, transfer, divisionanddissolution.

  21. BOARD of DIRECTORS • BoD, cannotconsist of lessthanthreepersonsincluded general manager. • General managermusthave min. 7 yearsprofessionalexperienceanddeputy general managermusthave min. 5 yearsprofessionalexperiencebesidesundergraduateleveleducation.

  22. Financial Leasing Contract Law on Financial Leasing • The Law no. 6361 on Financial Leasing regulating Financial Leasing operations • Leasing contracts gives the Lessee the possession of the Good in order to provide the full benefit for an irrevocable time period against payment of the Rental Amount. • Subject of a Contract may be movable or immovable Goods. • Ownership of the Goods subject to leasing shall remain with the Lessor . Intellectualandındustrialrightslikepatentscannot be subjecttothisContract.

  23. Financial Leasing Contract Legal Aspects of Leasing Contracts • The Lessee shall be the user of the Goods during the leasing period and shall have all benefits of the Goods, • The Lessee shall be responsible for the loss or damage to thegood, • The Lessee may not transfer his possession rights to a third party. • The Lessee shall pay the insurance premiums.

  24. Financial Leasing Contract Other Laws Governing Leasing Contracts • In the absence of a specific provision under this Law, leasing contracts will be governed by the general provisions if appropriate, private provisions as much as applicable, of the Law of Obligations. • Articles 688,689,690 of the Civil Code, Articles 222,223,224 and 254 of the Law of Obligations and the provisions of the Law no.6570 governing Real Estate Rentalsshall not be applicable to the Contract. • The Contract is exempted from all types of taxes, duties and charges according to Turkish Law of Tax.

  25. Financial Leasing Contract International Accounting Standards (IAS 17) • IAS 17 prescribes, for lessees and lessors, the accounting policies and disclosure to apply to leases. • Accordingtothe Standart; A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. • All other leases are classified as operating leases.

  26. FACTORING CONTRACT • Factoringcontract is a financialtransactionwhereby a businesssellsitsaccountsreceivable (invoices) to a thirdparty (called a «factor») at a discount. • THE SELLER THE FACTOR • THE DEBTOR • ThisContractmust be made in written form (Validityrequirement)

  27. FINANCING CONTRACT • Financingcontract is a contractwhichfinancingcompanygivescreditbymakingdirectpaymenttothe seller withdeliveryorprovidinggoodsorservicesforthe name or on account of a realpersonor legal entitywhopurchasesgoodsorservices. • Thiscontractmust be made in written form (Validityrequirement).

  28. CENTRAL INVOICE REGISTRATION • Factoringcompaniesandbankscentralizesknowledgerelatedtoreceivableswhichtheyhaveassigned, includedinvoicesinformation at Risk Center or in a mannerapprovedbytheAssociation.

  29. CRIMES • Operationwithoutpermission • Declerationagainstreality • Withholdinginformationanddocument, calimedbydulyauthorityandcontrollingofficersorpreventingperformance of theirduties.

  30. SANCTIONS • Administrativefines • Punitivefine • Prisonsentence

  31. CANCELATION OF PERMISSION FOR OPERATION • Non-startingactivitieswithinoneyearconsecutivethedate of permissionforoperation. • Non- becomingmember of theAssociationwithinonemonthfromthedate of receivingpermissionforoperationornon-performance of thisdutywithinoneweekfromthedate of warningbythe BDDK

  32. Non-declerationnewaddressandnon-presence in spite of legal notification • Having a break foroneyearwithoutinterruption • Performingrestrictiveactivities • Termination of the activity.

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