How much can you borrow from your company?
As a Director you hold the purse strings to the company’s finances, you can borrow cash from it, and it’s easy to think of the company as your business.
The trouble is, within the eyes of the law, companies are seen as their own entirety, a separate person if you like.
When you look at it that way, you can understand why you can’t just take money out of the company’s bank.
After all, you wouldn’t just take money out of a friend’s bank, would you?
However, the rules do allow you to borrow from your company, subject to the following conditions.
General rule, loans to directors are allowed as long as the shareholders approve, with the exception of the following:
- Loans totalling no more than £10,000.
- Loans up to £50,000 to cover company expenditure
- A loan to cover Directors legal costs in connection to a claim against them
Where none of the exceptions apply, you must get majority vote, which is 51% or over before you can take out the loan.
Remember, where an Ordinary Resolution has not been passed, your fellow directors (if you have any) could ask you to repay the loan without prior warning. This would also apply if the company ran into difficulty and the liquidator seeks to recover funds for the creditors.
And NO, the companies’ limited liability status will NOT protect you when this happens.
Finally, and this is very important, did you know that you are liable if a co-director takes money out of the business without following the rules set out in Companies Act 2006. If you allow a fellow Director to borrow money unapproved you could be held liable to pay it back, if they can’t.
Following procedure can seem like an overreaction, but we’ve all been in one of those situations where everything is OK until they go wrong.