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Loaning money to company

Discussion in 'Accounting & Tax' started by Tony Fleming, 7th Oct, 2015.

  1. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Hi everybody I run a part time business through a company structure. I'm looking at starting another business under the same company. I would like to loan the company the start up costs from personal funds and have the business pay me back over time. I understand I need to get a legal document stating that we are loaning the company money(with the interest rate, time period etc) just had a few questions if anyone had the answers

    1. With the repayments it would be a fixed interest rate. Would the company be able to pay back extra principal repayments at any time?
    2. Is it just solicitors that can draw up the contract? Or any specialised Accountants?
    3. The contract would have a clause for early repayment of the loan I assume?
    4. Any other tips or hints anyone can offer?
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Depends on what you write in the loan document.
    Draw it up yourself. It is not that difficult.
    Depends on what you write in the loan document.
    Inter-company or director's loans to a company are quite common. It is no big deal. Just document the loan amount, interest rate, repayment schedule and go to it.
     
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  3. D.T.

    D.T. Adelaide Property Manager Business Member

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    As the lender, you determine the rules of repayment. Just like the banks make all the rules when lending to us.

    I think best scenario is to on lend at the same term and interest as the funds you're using. If you're using cash, just make it realistic / market.

    You can have a lawyer or accountant write it, or just write your own.
     
  4. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Excellent thanks guys :D
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. Terms of the contract are up to the parties to negotiate.

    2. Legal work = only solciitors

    3. Don't assume, insert

    4. consider death, incapacity and control.
     
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  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    5. Loan security.
     
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  7. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Hi Paul would you need this if its between yourself though. Its only for equipment purposes so less than 10k. The company structure has no other debt and is already maintaining a healthy cash flow.

    Another thought I had was it wouldn't affect my tax deductions would it?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Paul makes a good point.

    What if the company fails? You want to take priority over other creditors.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A trustee in bankruptcy may find such a agreement to fail and dispute it but assuming its OK then in NSW the way to attain security is also using the PPSR. The PPSR replaced the old bills of sale etc. I believe the charge appears on the ASIC company searches. It acts to limit transfer of items which have a charge against them. Cars, boats, etc....

    https://www.ppsr.gov.au/

    So Director A's wife lends $ to Company and company uses funds to buy a expensive piece of farming kit. Security is given by the company and a charge is given through the PPSR. So Mrs A has a secured loan. In the event of liquidation she may have secured charge and rank ahead of unsecured creditors.

    Mrs A may even charge interest at 12% etc and the ATO may not consider that non-commercial if it was reviewed. (Think income splitting here people). Part IVA aside hard to identify it as a non-commercial deal as security has been given etc. Unsecured loan ? I see issues. A commercial loan would normally have security etc and 12% is probably competitive for asset finance.
     
  10. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    All valid points but the poster indicated it was for an amount of less than $10k. I dont think the costs of engaging solicitors to draw up contracts, hire accountants to give advice on things and worrying about all the potential issues for less than $10k is worth it.

    It is the reason why many accountants and lawyers are despised. Overkill. For $100k loan sure. For $10k just raise the issues but provide the other side which is worst case you have a party taking you to court for the $10k (probability less than 1%- why the $10k would be gone in legal fees are a month) .

    without raising the low risk to the poster it just sounds like what many accountants and lawyers do all the time. frighten people and make it overly complex to get some more fees from the client.

    Not to give legal advice but law central provides some nice docs for simple things. have used them myself

    http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=28# (Loan Agreement - no Security - $99)
     
    Last edited: 8th Oct, 2015
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  11. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Thanks. Definitely what I was after :) using the other business cash flow to pay it back so I'm not worried about going into default.