Directors Loan to Shares

Discussion in 'Accounts & Finance' started by anonuk, May 8, 2020.

  1. anonuk

    anonuk UKBF Regular Free Member

    302 44
    I have a Ltd company that, in its first year, made a big loss. This loss was funded by directors loan paid by myself.

    Having ran this company for a couple of years, the company is now making profit and we are taking advantage of the accumulated losses to reduce our tax.

    However, what I’d like to do instead (with the agreement of the other director), is convert my directors loan to shares in the company at a value of £1 per share. The company was formed with 2 x £1 shares (£1 for each director).

    Do I just fill out an SH01 form? And how would I account for this in our accounts?

    Thanks in advance
     
    Posted: May 8, 2020 By: anonuk Member since: Feb 27, 2014
    #1
  2. Scalloway

    Scalloway UKBF Legend Free Member

    16,589 3,513
    Debit Director's Loan
    Credit Share Capital.
     
    Posted: May 8, 2020 By: Scalloway Member since: Jun 6, 2010
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    25,381 3,094
    So you end up with xx number of shares and other director keeps 1 share. They will be happy watering down their shareholding as a percentage?
     
    Posted: May 8, 2020 By: Mr D Member since: Feb 12, 2017
    #3
  4. anonuk

    anonuk UKBF Regular Free Member

    302 44
    The other director is my wife and she’s not bothered in the slightest :)
     
    Posted: May 9, 2020 By: anonuk Member since: Feb 27, 2014
    #4
  5. NicoJ

    NicoJ UKBF Regular Free Member

    297 51
    Can I ask why? A directors loan account can be withdrawn tax free, why would you want to tie the money up?
     
    Posted: May 9, 2020 By: NicoJ Member since: Mar 27, 2017
    #5
  6. GLAbusiness

    GLAbusiness UKBF Regular Free Member

    215 43
    When the company decalres a dividend then if (say) you have 99 shares and your wife has 1 share then you will get 99% of the dividend and she will get 1%. This may not be the most tax efficient way to take dividends
     
    Posted: May 9, 2020 By: GLAbusiness Member since: Sep 20, 2008
    #6
  7. anonuk

    anonuk UKBF Regular Free Member

    302 44
    In simple terms, to improve the liquidity of the company. At present, the company has a negative balance sheet because of the directors loan, and while I’m not ‘rich’, I don’t need the money back from the directors loan so I’m quite happy with the funds being tied up in shares.
     
    Posted: May 9, 2020 By: anonuk Member since: Feb 27, 2014
    #7
  8. Mr D

    Mr D UKBF Legend Free Member

    25,381 3,094
    She may be more bothered if the pair of you ever get divorced or comes time to pay dividends and you end up paying more taxes than the pair of you could.
    O if you two disagree about what to do with the business.

    Still its up to the pair of you.
     
    Posted: May 9, 2020 By: Mr D Member since: Feb 12, 2017
    #8
  9. ExpertAccountant

    ExpertAccountant UKBF Newcomer Full Member

    9 3
    To do this, wou will need:
    -a special resolution; and
    -file the SH01 form or do it online.

    Accounting treatment will be (as already mentioned by the poster above): Debit DLA and Credit Share Capital.

    From tax point of view, you will be lesser off however.
     
    Posted: May 13, 2020 By: ExpertAccountant Member since: May 13, 2020
    #9