Personal Business loan repayment

V

vadar

Guest
A close friend of mine wants to invest €15k in my company. This is a long term investment. I run a very small online retail business as a sole trader and sell products of value between €50 and €400 per customer. My arrangement is to repay the investment as the products I would be putting his money into are sold.
How can I legally repay him this money, noteing that this is his own personal cash and he is a PAYE employee.
 
I don't see any complication here.

He lends you money and you repay it whenever you can/want to.

If you repay him the just the €15k, then it is an interest free loan and there are no tax implications.

If you pay him interest, then he should declare the interest on his tax return.

If you decide to sell him a share in the business, then it is much more complicated. You will effectively become partners. He will be subject to income tax on any profits made, whether they are paid to him or not.

I think a sum of €15,000 is too small to give him a share in the business. The accounting and legal and tax work around it would be very expensive.

Whatever you finally agree, make sure that you sign an agreement about what you are doing. Sometimes people have a discussion and don't fully agree with what they are actually agreeing . Some other times, years later they forget what they agreed and there is a big dispute over it.

Brendan
 
Thanks for the reply.
So the £15k , I can simply replay him with no issues and the point about getting the agreement in writing is a good idea.

So I will want to repay him a percentage of the profits also based on his investment (loan) value of approx' €1.5k. Do I need to complete any paperwork for this or is it up to him to declare the extra income.
i.e. Do I have any further responsibility to the revenue when I pay him the €15k + €1.5k ? or do I just repay the the monies.
 
A simple loan with a reasonable rate of interest should present no problems. How he declares his additional income is his business.

And a written agreement is a very good idea. Set out 3 things
a) how much is being loaned
b) the rate of interest
c) the terms of repayment ("X instalments of Y amount every Z", what happens if the company is sold, goes bust, etc. etc.)
 
I'm a bit confused, is this a loan or an investment?. If it's an investment and you plan to pay him profits, then why would you repay him the original capital?. If it's a loan, why would you pay him profits on top of the capital + interest?
 


I dont get the funding model here, on the face of it it seems a working capital issue, used to finance stock while its being sold or is he in effect using ur company to sell stuff that he will finance.

Just pay him an interest rate based commission, share of profit cals = complexity u dont need
 
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