Using a director's loan to introduce capital to a private limited company


W

webview2004

Is it legal for someone who has just changed their business from sole
trader to a private limited company, to 'introduce capital' by making a
loan to the company (to avoid the hassle of issuing shares)? And to
withdraw capital by repaying such a loan?
 
P

Peter Saxton

Is it legal for someone who has just changed their business from sole
trader to a private limited company, to 'introduce capital' by making a
loan to the company (to avoid the hassle of issuing shares)? And to
withdraw capital by repaying such a loan?
You can make a loan to the company and repay it but you still have to
issue shares.
 
D

David Floyd

You can make a loan to the company and repay it but you still have to
issue shares.
Dependent on the Mem&Arts you may need to only issue 1 share the rest
can be a loan.

DF
 
J

Jon Griffey

Is it legal for someone who has just changed their business from sole
trader to a private limited company, to 'introduce capital' by making a
loan to the company (to avoid the hassle of issuing shares)? And to
withdraw capital by repaying such a loan?
Don't forget the issue of valuing the goodwill (if any) to be
transferred.


--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 
S

sagelist

[1] Thank you everyone for such a generous answer to my question.

[2] I would be very grateful if you could suggest a textbook that would
cover the bases so I don't have to trouble you so much. All the texts
I've come across are like Frank Wood's Business Accounts Vol 2; they
seem to restrict themselves to introducing the differences between
entries for a sole trader and those for a public rather than a private
limited company. A textbook detailing the differences between the
entries for a sole trader and a private limited company is really what
I imagine I need (or are the differences so sparse that a text would be
overkill) (or so vast no text would suffice)?
 
P

Peter Saxton

[1] Thank you everyone for such a generous answer to my question.

[2] I would be very grateful if you could suggest a textbook that would
cover the bases so I don't have to trouble you so much. All the texts
I've come across are like Frank Wood's Business Accounts Vol 2; they
seem to restrict themselves to introducing the differences between
entries for a sole trader and those for a public rather than a private
limited company. A textbook detailing the differences between the
entries for a sole trader and a private limited company is really what
I imagine I need (or are the differences so sparse that a text would be
overkill) (or so vast no text would suffice)?
The reason is because accounting is based on a few principles and the
entries are easy to work out once you understand accounting. If anyone
tries to make accounting entries without understanding they get in a
mess.
 
K

Keith

Peter Saxton said:
[1] Thank you everyone for such a generous answer to my question.

[2] I would be very grateful if you could suggest a textbook that would
cover the bases so I don't have to trouble you so much. All the texts
I've come across are like Frank Wood's Business Accounts Vol 2; they
seem to restrict themselves to introducing the differences between
entries for a sole trader and those for a public rather than a private
limited company. A textbook detailing the differences between the
entries for a sole trader and a private limited company is really what
I imagine I need (or are the differences so sparse that a text would be
overkill) (or so vast no text would suffice)?
The reason is because accounting is based on a few principles and the
entries are easy to work out once you understand accounting. If anyone
tries to make accounting entries without understanding they get in a
mess.
Most succinctly put, sah!

I salute you.

Pity those '..few principles..' have become a stomping ground for every
politically-inspired, greed-oriented, self-obsessed jobsworth that the
Treasury can find.
 
T

Troy Steadman

sagelist said:
[2] I would be very grateful if you could suggest a textbook that would
cover the bases so I don't have to trouble you so much. All the texts
I've come across are like Frank Wood's Business Accounts Vol 2; they
seem to restrict themselves to introducing the differences between
entries for a sole trader and those for a public rather than a private
limited company. A textbook detailing the differences between the
entries for a sole trader and a private limited company is really what
I imagine I need (or are the differences so sparse that a text would be
overkill) (or so vast no text would suffice)?
The differences will (ordinarily) be:

OUT - [Balance Sheet]: Capital Introduced, Drawings

IN - [Balance Sheet]: Share Capital, Directors's Loan A/C (also called
Current A/C), Dividends Payable
- [Profit & Loss Account]: Directors Remuneration (Salary), Dividends

Assuming there is no parallel trading the Assets and Liabilities of the
Sole Trader business disappear down a black hole on the last day of
trading, reappearing out of an equal and opposite black hole in the Ltd
Company on its first day.

As the other have hinted, unless you are confident with this it would be
a good idea to pay for professional advice.



--
 
T

Troy Steadman

Troy Steadman said:
Assuming there is no parallel trading the Assets and Liabilities of the
Sole Trader business disappear down a black hole on the last day of
trading, reappearing out of an equal and opposite black hole in the Ltd
Company on its first day.
What I've said here is correct but I should make clear that this is a
retrospective journal made as long after the changeover as possible to
allow everything to wash through the Sole Trader accounts.

There should be no Trade Debtors, Trade Creditors or Bank Balances to
carry across, just Fixed Assets, HP Liabilities, Bank Loans,
Prepayments, Accruals.

Nobody *ever* gets this right. New VAT scheme, new PAYE scheme, new Bank
Accounts, same customers unaware that they are dealing with a different
entity, is a recipe for a cock-up extraordinaire! Which is why...
As the other have hinted, unless you are confident with this it would be
a good idea to pay for professional advice.



--
 
P

Peter Saxton

What I've said here is correct but I should make clear that this is a
retrospective journal made as long after the changeover as possible to
allow everything to wash through the Sole Trader accounts.

There should be no Trade Debtors, Trade Creditors or Bank Balances to
carry across, just Fixed Assets, HP Liabilities, Bank Loans,
Prepayments, Accruals.

Nobody *ever* gets this right. New VAT scheme, new PAYE scheme, new Bank
Accounts, same customers unaware that they are dealing with a different
entity, is a recipe for a cock-up extraordinaire! Which is why...
If a sole trader invoice gets paid into the limited company that is a
directors loan.

If a limited company invoice gets paid into the sole trader bank
account that is a repayment of a directors loan.

You need to ensure that the balance doesn't show you owing money to
the company so you have to monitor it and make payments to the company
if necessary.
 
T

Troy Steadman

Peter Saxton said:
You need to ensure that the balance doesn't show you owing money to
the company so you have to monitor it and make payments to the company
if necessary.
What about Jon Griffey's Goodwill? Goodwill is my least favourite
fungible asset, my tax brain is notoriously tax-hopeless, but even I can
see there must be *big* things to consider here?

How do you value Goodwill?

Presumably it never appears in the Sole Trader Accounts but:

DR Goodwill
CR Directors Loan

....in the Ltd Co is a handy start.

Is there a Chargeable Gain at that point in the Ltd Co? How do you
write Goodwill off?




--
 
J

Jon Griffey

Troy said:
What about Jon Griffey's Goodwill? Goodwill is my least favourite
fungible asset, my tax brain is notoriously tax-hopeless, but even I can
see there must be *big* things to consider here?

How do you value Goodwill?

Presumably it never appears in the Sole Trader Accounts but:

DR Goodwill
CR Directors Loan

...in the Ltd Co is a handy start.

Is there a Chargeable Gain at that point in the Ltd Co? How do you
write Goodwill off?
There is likely to be a chargeable gain on the transferee.

The holy grail is to get full BATR on this and take the 10% CGT on the
chin and have the loan to draw down tax free.

How to value goodwill is the tricky bit. Worth reviewing CG68011.

http://www.hmrc.gov.uk/manuals/cg4manual/html/CG67130/16_0094_CG68011.htm
--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 
P

Peter Saxton

What about Jon Griffey's Goodwill? Goodwill is my least favourite
fungible asset, my tax brain is notoriously tax-hopeless, but even I can
see there must be *big* things to consider here?
This is the point your friend with the funny website was pointing out
in his unusual way.
How do you value Goodwill?
Within reason you do whatever you want.
Presumably it never appears in the Sole Trader Accounts but:

DR Goodwill
CR Directors Loan

...in the Ltd Co is a handy start.
Perfect start.
Is there a Chargeable Gain at that point in the Ltd Co? How do you
write Goodwill off?
Why should there be a chargeable gain? It's a purchase.
 

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