Directors loan account

sallyh · Oct 1, 2008

Hi, I am a non-shareholding Director in a small business and it has been suggested that to ease current cash flow pressure, all Directors could agree to post the same percentage of their salary to a Directors loan account to be withdrawn once the cash flow pressure has eased. Is this how a Directors loan account works? Would it be normal for non-shareholding Directors to be asked to make this commitment? And is it acceptable that non-shareholding Directors make the same level of commitment as shareholding Directors? Would anyone have any advice in this situation? Thanks in advance for your replies.

UKSBD · Oct 1, 2008

You're a non-shareholding Director of a company with cashflow problems,
you can afford to lend some cash to the company. sounds like a good time
to become a share-holding director

(assuming you think the company is worth the risk)

Would the existing shareholders let you buy shares if you wanted to?

elaine@cheapaccounting · Oct 2, 2008

Is this how a Directors loan account works? Yes

Would it be normal for non-shareholding Directors to be asked to make this commitment?

I would say not. The director / shareholders would get a share of future profits so 'pain' should mean 'gain' later. For you there are no other rewards to funding the business now - unless you agree loan terms

And is it acceptable that non-shareholding Directors make the same level of commitment as shareholding Directors?

Again I would say not

If the company has cash flow problems I would suggest that you carefully consider your position before loaning them your salary or investing further - is this a temporary issue or a sign of underlying problems?

HattyBeth · Jun 11, 2009

Hi,

My husband has just cancelled his directorship with a limited company following issues with the other director.

There is an outstanding loan account, part of which (18K) has been allocated to my husband according to the other director (his loan is 60k).
This directors loan was taken out prior to my husband taking the post as director, and he has never signed any documents to acknowledge this loan.

This has all been done on the advice of the accountants the loan account that was allocated to my husband after 1 year of working at the company, he was initially given his share for work done in previous years however after the year a directors loan of 25k to pay for my husbands shares was added against him this was wittled down by not taking a dividend, the accountants the advised taking a small wage and a dividend to both share holders however as the company has made substansial losses this last financial year the loan account stands at £18k, and the company is pretty much insolvent.

How does he proceed with this? any help/advice greatly appreciated.

Thanks

Beth

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Directors loan account

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