Any limit on drawings from single member company?

[jbax]

Hi,

If I was to set-up a company, can I withdraw money for personal use at my own discretion?

For example, if my business' bank account had €30,000 in it, could I withdraw that an buy a new car or something?

 

[Graham_07]

In short, No. Just because you are the sole owner does not mean you can treat the company's funds as your own personal banker. There are very strict rules on what and when you can draw money from a company. There are also tax implications of transactions between the owner/director and the company and , if you do not follow Company Law correctly, there are serious implications there including fines and penalties. If you propose to set up a single member company you really need to speak with a professional to get the facts on what you can and cannot do straight before you proceed. Some good advice may be found at www.odce.ie and www.cro.ie. In particular the ODCE has a food booket on Transactions with directors which may be of help.

 

[woods]

The tax man sees a clear distinction between "you" and "The Company". As far as he/she is concerned you are 2 distinct entities and transfer of funds between the 2 are clearly controlled.

 

[bazermc]

In short, No. Just because you are the sole owner does not mean you can treat the company's funds as your own personal banker.

There was actually an item on the RTE news about this during the week the director of the ODCE was commenting on it.

Extract from his annual report for 2006

Other significant results from the Annual Report are:

• the repayment of over €160 million by directors and connected persons to their companies and the referral of 86 large cases involving some €48 million to the Revenue Commissioners because of possible tax liability concerns;

 

[Graham_07]

the repayment of over €160 million by directors and connected persons to their companies and the referral of 86 large cases involving some €48 million to the Revenue Commissioners because of possible tax liability concerns;

Yes, so called "illegal loans" are now coming home to roost as it were. Section 31 Companies Act 1990 brought in the rules on transactions with directors and for some 16 years we blissfully ignored them. The ODCE has made good ground in cleaning up Company Law compliance here since the office was set up and not before time too.

 

[ubiquitous]

Section 31 Companies Act 1990 brought in the rules on transactions with directors and for some 16 years we blissfully ignored them.

This is a bit of an exaggeration. There was widespread ignorance of this law at one stage but not in recent years. This issue was addressed specifically in the 2001 Company Law Enforcement Act and has been a very real issue for company directors, auditors and other concerned parties ever since then.

 

[Graham_07]

This is a bit of an exaggeration. There was widespread ignorance of this law at one stage but not in recent years. This issue was addressed specifically in the 2001 Company Law Enforcement Act and has been a very real issue for company directors, auditors and other concerned parties ever since then.

I would not consider €160 million in illegal loans to be an exaggeration whether today or last year. Yes, more people are now aware of the implications but one wonders if ODCE had not embarked on their campaign would there have been any change.

 

[ubiquitous]

Of course there is widespread non-compliance with this law. However I don't think this can be blamed on ignorance of the law. Company directors are sick at this stage of hearing from their accountants and other advisors about the ins and outs of the post-2001 company law regime & the dangers of illegal directors loans. In most cases, breaches of this law can be classified nowadays as wilful lawbreaking rather than ignorance of the law.

That said, the ODCE's record in recent years is far from satisfactory. I would argue strongly for example that its efforts to enforce compliance in property management companies have been disastrously counter-productive to date. It has also failed utterly to police the quality of financial statements filed in the CRO even where defective balance sheets have been filed in situations where companies have screwed creditors.

 

[Graham_07]

It has also failed utterly to police the quality of financial statements filed in the CRO even where defective balance sheets have been filed in situations where companies have screwed creditors.

Even without creditor situations this I must agree that I have seen many instances of poorly submitted accounts for which one would expect should be returned for correction or situations where companies claim audit exemption while not entitled and it's not picked up and the checking of accounts filed seems to be at best haphazard.

Ignorance of company law still prevails among many directors, especially those in the situation you described of property management companies. Most of those directors are homeowners who have no other involvement with companies and are many times shocked on realising that breaches have occurred. I have previously mentioned and re-iterate here my firm belief that like the driving licence, one should not be allowed to become a company director without passing some basic test on rights and obligations. Driving a company can, in some cases, be just as disastrous to the wealth of others as driving a car while unlicensed can be to the safety of others. The tutoring of directors by accountants/auditors on basics of company law is not really fair on the profession and I am fed up of the number of times a director has said " oh but you never told me that". The last time one did I slapped Butterworths on the table and said to him well if you have a few days spare I'll go through it all with you now. (Rant over )

 

[Hans]

What is the situation of a director of a company taking out a loan from his company. I know this is possible in the north of Ireland for a limited time but dont know what the situation is here in the south.

 

[capall]

You can take what you like out of the company during its financial year once you have your tax position right at 31 oct and the companys tax position right at its year end

Once you leave directors loans in place at company year end you have to report it on your CRO return and also if its left in place there are income tax implications if its an interest free loan.

if its repaid in a few months after the year end the revenue are usually ok about it

 

[Graham_07]

You can take what you like out of the company during its financial year once you have your tax position right at 31 oct and the companys tax position right at its year end

Once you leave directors loans in place at company year end you have to report it on your CRO return and also if its left in place there are income tax implications if its an interest free loan.

if its repaid in a few months after the year end the revenue are usually ok about it

I consider this an extremely dangerous response to what has already been described as a serious issue.

Firstly, you CANNOT take what you like out of the company "once you have it right at year end" . Section 31 Companies Act 1990 ( as already referred to in earlier posts ) prohibits advances to directors where the advances exceed 10% of the net assets of the company. The 10% rule is generally based on the net assets as per the most recontly available financial statements. A director may easily breach this rule during the year even if it is "ok" at year end. Many companies, especially small owner managed ones have low net assets and therefore the 10% may be a very small amount. Directors loans must be shown in the financial statements not just at their opening and closing amounts but at their MAXIMUM amounts attained during the year. This leaves it very easy to check for breaches.

Secondly, tax on directors loans must be paid with a company's CT return. Any tax due back to the company on repayments of the loans can be reclaimed from Revenue no problem. Why not do it right and avoid any potential problems. I would be very dubious of hoping they would be " ok about it" if the company were to be audited by Revenue.

 

[oopsbuddy]

A good summary Graham. I think Capall was probably summarising what goes on generally, and that companies tend to get away with it, mostly, but you are right, and the correct procedure is what should be employed at all times.

 

[deem]

I dont understand why you would borrow money from the company when its your business, if the company has 30K in the bank why not pay yourself a salary or pay dividends instead.

As previously stated any payment you make to yourself from the company is taxed at 25%. in addition legal implication can see the Director of corporate inforcement coming down heavy on you if loans are left unpaid.

While the practice of it is many directors use company funds to pay various personal expenses and then either repay prior to year end or issue bonus, dividend etc to clear. You as a company director are obliged to disclose the amounts you have borrowed from the company during the year and how much you have repaid.

Another alternative would be to get the company to buy the car. YOu would then be able to use it although this would be a beneift. You probably should discuss this with an accountant.

 

[ubiquitous]

As previously stated any payment you make to yourself from the company is taxed at 25%.

Not true.

 

[Graham_07]

I
As previously stated any payment you make to yourself from the company is taxed at 25%

Technically correct as the tax paid over by the company works out at 25% of the actual amount paid over to the director/participator used in the calculation, or 20% of the re-grossed amount.