Yes, my understanding is it would be a breech of company law for them to lend you over 10%, but others better versed in this area might clarify.Total assets of the company would be about 2,000,000 - does this rule out the idea completely? Is the 10% rule because I am a director/shareholder or is it a general rule
Hi k
You really do not want the complications of a loan from a company to an individual who is a director and shareholder. It's easy to do it wrong and break the company law and tax law.
Why has the company built up cash? That is the more fundamental question. You should make sure that it has a strategy for not building up useless cash balances which are inefficient for tax purposes. It might have been better to pay that cash out as salary instead of accumulating it and seeing it stuck in the company.
So it might make sense now to address this problem and pay the cash out and take the hit.
Brendan
Hi Pinoy
Some companies need cash.
But when the question is of the type "How can the company lend me cash it does not need?" , it indicates that it has accumulated cash it does not need without any plan.
And lots of companies do this.
Brendan
A few other reasons for not keeping excess cash or assets in a company...
1) If you want to admit a new shareholder into the business, you are giving them a share of the excess cash as well as the normal business assets.
2) If you sell the company, the buyer has to buy the excess cash.
It's generally not a good idea unless it's part of a tax plan to avail of Entrepreneurial Relief or Retirement Relief in the short-term.
Brendan
#2 wouldn't the current director or shareholder/s remove the cash befour the sale ? If not why ?
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