General query please to try to get an understanding of the following issue:
A sole trader trading for a few years transfers / incorporates the business into a ltd company (single member co (husband), 2 directors - husband and wife). All of the sole trader’s business assets and liabilities are transferred to the business which results in a surplus of €40k which is posted to a director’s current account. Only 1 share issued – share capital = €1
The company makes a loss of €20k in year 1 after paying directors remuneration of €25k. The director’s current account still has a balance of €40k. The Balance sheet at the end of year 1 will therefore show a deficit of €19,999 - the deficit is essentially financed by the director’s current account but the director’s current account balance is shown in the top part of the balance sheet, therefore the balance sheet will be negative even though the business is in funds. Is my understanding correct in this regard?
If the directors current account balance was transferred / converted to share capital obviously the balance sheet would go back into the black but is there any other way of transferring some or all of the directors current account to “below the line”?
One more question please – would it have made sense for the director to take a salary of say €15k in year 1 and take €10k out of the directors current account to save on PAYE or indeed not to take a salary and just take the money due to him from the directors account? Is there any good reason not to do this, i.e. to take some money out of the business from the directors current account (i.e money that is due to the director) and taking a reduced salary? I assume that it would make sense to take some salary rather than to draw all of his income from the directors account to avail of personal tax reliefs etc?
Thanks in advance for any advice / comments
A sole trader trading for a few years transfers / incorporates the business into a ltd company (single member co (husband), 2 directors - husband and wife). All of the sole trader’s business assets and liabilities are transferred to the business which results in a surplus of €40k which is posted to a director’s current account. Only 1 share issued – share capital = €1
The company makes a loss of €20k in year 1 after paying directors remuneration of €25k. The director’s current account still has a balance of €40k. The Balance sheet at the end of year 1 will therefore show a deficit of €19,999 - the deficit is essentially financed by the director’s current account but the director’s current account balance is shown in the top part of the balance sheet, therefore the balance sheet will be negative even though the business is in funds. Is my understanding correct in this regard?
If the directors current account balance was transferred / converted to share capital obviously the balance sheet would go back into the black but is there any other way of transferring some or all of the directors current account to “below the line”?
One more question please – would it have made sense for the director to take a salary of say €15k in year 1 and take €10k out of the directors current account to save on PAYE or indeed not to take a salary and just take the money due to him from the directors account? Is there any good reason not to do this, i.e. to take some money out of the business from the directors current account (i.e money that is due to the director) and taking a reduced salary? I assume that it would make sense to take some salary rather than to draw all of his income from the directors account to avail of personal tax reliefs etc?
Thanks in advance for any advice / comments