Putting Personal Money Into Business - Best Way?

[anonlh2020]

Hi All

Hope everyone is well.

Looking at forming limited company and wanted to clarify the best way to put personal money into the business/business account?

Is this best done on incorporation through buying of shares i.e. share capital?

Would it be better done as a directors loan?

Or, is it just as simple as making a transfer from my personal bank account to the business account whenever? Is there any special 'rules' or a best practice to follow if transferring money from a personal account to a business account and is this allowed or is there a particular method or some form of paperwork to doing this?

Any particular pros or cons to either method?

Appreciate any advice you can offer.

Many Thanks

 

[Scalloway]

If you put money into the compnay as shares it is stuck there. The only way to get it out is either a legal or liquidating the company.

Or, is it just as simple as making a transfer from my personal bank account to the business account whenever?

Yes. But you are better doing a letter or similar to make it clear what you have done.

 

[jimbof]

Shares or loans, you need to make sure it is well recorded. My accounts SW (freeagent) deals with director's loan account very easily. Director's loan is I'm certain the easiest.

If you do director's loan, the co can pay you back as soon as it has funds without there being any complication.

If you do share capital, if you want the money back I think you have to sell the shares back to the co which is a fair bit of agro.

If the chance of business failure is significant I believe there can be other benefits to shares where you can offset the loss against other earnings for tax purposes, whereas if the business fails with a loan then that money has vanished

Speak to an accountant has to be the standard but valuable advice as much will depend on scenario - eg if it's only a few quid to buy a laptop and desk that the co could pay back really quickly, vs investing tens of thousands to bootstrap the business.

 

[Mike Godwin]

IMO a directors loan is the best way.

 

[Vin Gupta]

I think Directors loan is best too. That is what most business owners do. Any money given via a directors loan can be take out of the company tax free

Share capital isn't easy to liquidate, and withdraw from a company

 

[Talay]

There is also an ability to charge the company interest on a director loan but the costs of filling in the paperwork and most people's tax positions make doing this rather a waste of time. I would raise it though as things and person tax positions do change.

 

[Oscar478]

I did a directors loan to start my business. It has to be the easiest way. Transferred it in, and didn't worry about it until time to repay. My accounting software let me label it as a directors loan. When the bank account was healthy I simply transferred it out, and notified my accountant, who did an account adjustment in the software. It was never mentioned in my filings but is evidenced if an audit comes around.
I got nothing from it in terms of interest. I'm sure there may have been a tax advantage (and a huge amount of faff) if I had charged the company interest for the loan... but it was reasonably small, and it was paid back within a year or 18 months. Talk to your accountant, or just transfer in and out, making sure you label is as a non revenue impacting transaction.