Can I give a loan from one of my companies to the other ?

webdevdude

I have Company A where I'm a majority shareholder, 100%. I have set up a new company, Company B, where I am also a majority shareholder, 80%.

I would like to loan Company B approx. €20K from Company A for cashflow purposes.

My questions are:

(1) Is this possible / legal ?
(2) How do I represent it in my accounts ?

Thanks for the help

Bigcheeze

yes that's fine. Best practice would be to have a simple loan agreement between the two companies and accrue a reasonable rate of interest on the loan. Company A shows the loan as an asset and any interest as income. Company B shows it as a liability and any interest as a cost.

Edit: I see the companies have no relationship. The loan would need to be on an arm's length basis (i.e. commercial terms) or it would potentially be illegal under the Companies Acts as illegal financial support of shareholders.

Synode

Do you know where in the Companies Acts it says this?

Immy

The companies are related parties and close companies for tax.

The loan in Co A could be in breach of company acts and there could be a tax liability as it would be deemed to be a directors loan. But would have to see the financial statements of Co A so really get on to your accountant and see.

Alan Shore

There are rules to restrict these type of transactions.

The 10% rule being a common one where the two companies are connected but not part of a group.

The lending company may face a 20/80 income tax as it has effectively given the loan to the director who has lent it on.

http://www.accountingnet.ie/law_regulation/1Complying_with_Company_Law_When_Giving_Loans_to_Directors_Connected_persons.php

If they were part of a group this would be much more straight forward.

webdevdude

Thanks for the answers. BigCheeze what do you mean by "loan would need to be on an arm's length basis" ?

If I'm reading this right is the only way to do this if the companies were part of a Group ?

J.Ryan

Company A can loan the money to you

You then loan the money to company B



But, talk to your accountant before doing this, as there may be issues with this.


You can write the cheque from A to B, but this is the only legal way to record it, unless you have company A buy a share in company B, but then you lose the audit exemption in both companies (assuming both companies have it)

Synode

Can anyone tell me why company A can't just loan the money to Company B?

Immy

Synode wrote: »

Can anyone tell me why company A can't just loan the money to Company B?

Both companies are owned by the same person so are connected parties. If company B owes company A money it's deemed as if Company B actually owes the director money and that is fine.

However if company A is owed money from company B, than it's deemed as if the director owes the company the money, hence directors loan. This is where the problem arise as a director can't owe a company money unless under very strict rules ie 10% rule. Also there is also tax implications.

dbran

Hi

There are lots of options and work arounds that can be used and you are probably not going to get anything like the definitive answer you are looking for on here.

You need to talk to your accountant about this. If you dont have one it is probably time you got one.

Best of luck

Dbran