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Loan agreement between director and limited company

When occasionally the limited company is financed by its director or shareholder with amounts less than £500, or amounts between £50 and £100, is a loan agreement compulsory? Does this loan agreement need to be registered in the company registers?

Thank you.

Hi @Laszlo

This is probably something you should ask your Accountant to make sure you are complying correctly.

No, there is no need to draw up a loan agreement for such small amounts, especially if they are repaid fairly quickly. If the director is going to loan larger sums on a long-term basis, it’s a good idea to have a loan agreement, just to be clear about any interest (if charged) and repayment terms.

@Laszlo It’s required by law (CA 2006) a director loan needs shareholder approval but loan agreement is not necessary. However, small amounts nearly 100% of time are expenses incurred by the director rather than loan. By law, expenses don’t require approval. What I do is create a separate Director Expense loan account and record these small expenses. Avoid director loan.

Hi there, I have invested around £8000 into starting my buisness. Should i put this down as an expense or a company loan. My intentions are to withdraw the money out of the business. Thanks

You would put this down as a loan. If the company pays you interest, this would be an expense but not the loan itself.

Thanks for that, is there any information about how to do this? Cheers

Probably. But the gist of it would be.

Tag the transaction as directors loan account.

Or capital introduced. But it all depends on your intentions. Only you know that.

Thanks. My intentions are to pull that money out straight into my pocket with out paying tax as i put it in the business to set it up… do you think that could be problematic? Thanks

Problematic? No idea, are you on UC or tax credits or any other type of benefit? If so then potentially yes it will be problematic.

If the answer is no, then it would not be a problem.

The money you introduced should have been tagged as a directors loan account. When the company has enough available funds, you can take back what your owed and again tag that as directors loan account.

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