Home – New Forums Money matters Loaning Own Company Money

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  • #974812
    wanopt
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    Hi All,

    anyone here had the experience of loaning their own money to their own company. Any pitfalls I should look out for? Is a registered accountant required to draw it up or can you do it yourself? Is there a number of ways to do it? Company pays you back with interest; as a dividend via shares; as part of a salary etc? Thanks.

    Mark Sargent
    WANOPT

    #1070509
    marketingweb
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    Without being able to give you specific advise, just make sure when you say “company” you really are talking about a company (PTY LTD) and are not just using the word incorrectly to mean “business”.

    The reason I mention that is that each business structure (sole trader, partnership, PTY LTD Company, Public Company) is likely to have a different answer to this specific question.

    This mainly relates to the fact that a company is a “seperate legal entity”, or to put in other terms is basically considered to be like person itself, although not a “natural person” aka a human. So a company can generally be lent money by you, as a company is something you OWN and operates in some ways like a person.

    A sole trader on the other hand is something you ARE not something you own. It’s not a person natural or otherwise, and so you basically can’t lend money to yourself as I see it – you can just take equity in or out of the business.

    Hope this is of some help (even though I haven’t given an exact answer), and may prompt someone more specialist than myself to answer, if you can confirm you are actually talking about a company in the true sense of the word.

    #1070510
    veseli
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    Hi Everyone, my first post.

    I have done it before to help company fund large projects, it was interest free so whatever i gave i just took back after a while.

    Basically the way to do it is, you must use accounting software and do your own bank reconciliation monthly, and the main thing is that at the end of the day it all balances out, so whatever your bank statement is showing, thats the balance it should be in your bank reconciliation report.

    If you start repaying in wages, or interest it could get a little bit complicated, but can be done.

    #1070511
    James Millar
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    wanopt, post: 87866 wrote:
    Hi All,

    anyone here had the experience of loaning their own money to their own company. Any pitfalls I should look out for? Is a registered accountant required to draw it up or can you do it yourself? Is there a number of ways to do it? Company pays you back with interest; as a dividend via shares; as part of a salary etc? Thanks.

    Mark Sargent
    WANOPT

    Hi Mark.

    Yes you can loan funds to your company very easily. There is currently no mandatory requirement to charge interest on a related party credit loan (although depending on the business it may be a good idea to do so). The only issue that can really come from debt based funding (as opposed to equity) is that it can lead to a less credible and less solvent balance sheet. It’s far easier to have negative net assets on your balance sheet if the general business funding is recorded as loan rather than equity. Not a massive problem if you are making and retaining profits and if you document your loan conditions such that you can’t call the funds if the company balance sheet is in poor condition.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1070512
    wanopt
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    Thanks, all. Yes, we’re a propriety company limited by shares. I shall just type up a quick statement of record, sign it as the lender/director and as stated, make sure I record it in our accounting software as a loan. I’ll also make it so it cannot be called on unless the company is profitable.

    Mark Sargent
    WANOPT

    #1070513
    wanopt
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    Hi All,

    Here is the agreement I’ve done myself as the Director of Wanopt Pty Ltd. Does it look sufficient. Thanks.

    Mark Sargent
    WANOPT

    Loan Agreement
    24th August 2011

    This is an agreement between Wanopt Pty Ltd and Mark Sargent of 9/21 Holbrook Ave, Kirribilli, NSW Australia. Mark Sargent has agreed to loan Wanopt Pty Ltd the sum of $20,000 Australian dollars. Mark Sargent agrees that this is interest free and can only be called upon if/when Wanopt Pty Ltd has funds and both parties agree the refunded amount can be met by Wanopt Pty Ltd. First installment of $5000 to be made 24/08/11. Subsequent 3 x $5000 amounts to be made when both parties agree it’s required. Records of electronic funds transfer confirm amount owed in this agreement.

    Signed
    Mark Sargent
    Director
    Wanopt Pty Ltd

    #1070514
    Travis
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    • Total posts: 60
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    Hi Mark

    This agreement documents your intentions well. I would keep the agreement more flexible, without fixed dates of repayment.

    From a tax perspective, if a private company that you own owes you money, no formal agreement is required, but having a paper trail of all of your company’s actions is best practice.

    The ugly side of tax is where you owe the company money, which is not the case here. When you owe the company, formal loan agreements are required, and professional preparation of the loan documents is necessary.

    Regards

    Travis Allen CPA
    http://www.hillyerriches.com.au

    #1070515
    wanopt
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    • Total posts: 9
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    Thanks, Travis. The loan is $20, 000 with 4 x $5000 payments. The first was transferred to the company account on 24/08/11.The subsequent transfer will be made when/if required.

    Mark Sargent
    Director
    WANOPT Pty Ltd

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