Limited Company, accounts and taxation assistance please.

It is illegal to make the loan at all: Companies Act 1985, section 330.

"Small amounts" (up to £5000 in aggregate) are OK, though. Section 334.

There are both civil remedies (sec 341) and criminal penalties (sec 342: fine, imprisonment, or both) for breaches of sec 330.

Despite the practice being illegal, in normal circumstances it would be extremely unlikely that anyone would be prosecuted, but there would be hell to pay if the company were to become insolvent, and the directors involved were unable to repay the loans straight away to fix the problem.

Despite serious criminal penalties being available, it seems (unless my quick reading missed it) that even in the 2006 Krikorian case the directors escaped both fines and prison terms, and instead being disqualified from holding directorships for 8 years.

The Companies Act 2006 does indeed allow loans to directors but shareholder approval needs to be obtained. At least an ordinary resolution is required. It is not sufficient to just say: "I'm the

Ronald, the rules were changed from 1 October 2007. Read the Companies Act 2006.

So i am correct then its not ilegal for a company to make a loan to a director

All the companies act does is to limit the amount

I wasnt arguing procedure or amounts , my point was that companies can loan money to directors .

If your the sole director holding all the shares and the loan is declared in the company accounts then its pretty much academic .

Well, before the 2006 Act came in, it limited the amount to a pittance. You couldn't loan a director any *serious* money. The case quoted, for example, involved a couple of million quid.

Since the new Act, it's still not enough merely to "record it in the accounts". It must be formally resolved and minuted at a board meeting. Even if you're a sole director/shareholder you can't be cavalier about it, you still have to have a "meeting". Call it academic if you like, but the eyes and teas have to be crossed and dotted.

It's not academic at all. An ordinary resolution is needed in advance.

As i pointed out i believe

Which if you are a sole director is never going to be voted down , as the only shareholder you are likely to be the only one at the meeting

It doesn't matter how many directors there are. The point I am making is there has to be a meeting and the resolution has to be passed. Many times sole shareholders treat company funds as their own.

Very difficult to have a meeting of one , same with passing the resolution

A case of opening the cheque book writing out the cheque whilst muttering to yourself motion carried .

It would be extemly difficult for anyone to challenge a sole director as to wether a meeting was held and wether the motion was carried , if it was recorded within the company accounts its unlikely that any prosecution would follow

A simple statement that the record was mislaid would suffice , its easily done as the government and its revenue collection services ar quite aware .

Infact any prosecution would end up a total pr disaster

You don't seem to have much experience of company secretarial work.

If a company lent a lot of money to the director and it turns out that there is no evidence of a resolution then if the loan is impossible to reclaim then the director has committed a criminal offence and could be prosecuted. I'm not sure what kind of PR disaster you are talking about but I don't see any logic in that comment.

The operative word is could , with a sole director it would be highly impropable

Lack of written resolution does not in itself mean that the director has commited any offence , as long as any loan is recorded in the company accounts filed with the inland revenue and companies house then its highly unlikely that the cps would even bother with bringing any charges , they need to prove beyond reasonable doubt that the director went against the wishes of the shareholders As the director is the only shareholder then its unprovable and somewhat stupid.In this senerio he/she has declared it in the company accounts filed with the tax office and companies, they couldnt even show an intent to defraud (assumming the company is solvent)

Dragging a sole director through the courts on this basis would make the authorities look totally and completly incompetant , for what is in reality a minor infraction of company law when you take into consideration that the person they have dragged into court would be the only one attending the meeting that could vote for or against the resolution that he/she put forward .

Common sense would need to be applied

If the business had several directors and shareholders then it would of course be far more serious as it could well be seen as an act of theft or fraud and i would expect legal action to be bought against the person involved in this senerio

You seem to be missing the point that a limited company has respom

I am not missing the point at all , you seem not able to understand the difficulties bringing any action against sole director business when the only witness is often the defendant

I note that the requirement to have a co secretary has been removed.

It's not the question of needing witnesses. There's has to be documentary evidence.

Quite so, evidence that the required resolution was in fact passed. I gather Mr Robinson's answer to that was that he would, if push came to shove, untruthfully claim that the resolution *had* indeed been passed, and duly minuted, but that the written minutes had been, er, "lost, m'Lud, honest.".

That excuse wouldn't wash, though, would it? Quite apart from the judge presumably having some latitude where it comes to believing whether the "witness" is telling the truth, is it not the case that there is a requirement for such resolutions to be lodged with Companies House?

Which would be satisfied if the loan was reported in the company accounts