Can companies with common shareholders lend to each other.

Slash

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If Company A has two shareholders and two directors, and Company B has the same two directors and shareholders, can Company A lend money to Company B?

I have looked up the Companies Act, but, frankly, i did not find the answer.

Appreciate any assistance.
 

RedOnion

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They'd fall under a body corporate controlled by directors.

Unless the companies are part of a group structure.
 

Slash

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Thanks.

In this case, the companies are not part of a group structure.

So, they could lend to each other?
 

jpd

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I fail to understand what having the two companies lend to each other would achieve?

It would not increase the value of either - in fact it would probably make them riskier

What is the goal?
 

Slash

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Honestly, i don't know. It is a question that was posed to me by someone who thought i would know, but i don't .
 

jpd

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Unless it is not allowed in the constitution of the company, I do not think that there is any legal reason to stop them lending.

They will probably have to declare it as they are lending to connected parties.
 

RedOnion

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So, they could lend to each other?
No. It'd be effectively the same rules as lending directly to the directors. So any loan over 10% of net assets would be illegal. The directors would also be leaving themselves personally liable if Company B failed to repay the loan.
 
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