Director's loan

Writing off a director's loan to a company

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What would be the formal process for writing off a loan given to a company by one of its directors. The director in question is no longer going to be a director, is transferring their shares to another party and is happy for the loan to be written off. What tax implications might there be and how should it be accounted for?

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paddle steamer
By DJKL
25th Oct 2016 14:33

Is there any merit in the continuing directors/ shareholders purchasing the loan and adjusting the price for the share disposal (presuming an arms length sale) to allow for the loan, or some variant thereon?

We have twice needed to buy out both share and loan interests from departing shareholders/directors and on each occasion have taken this approach; the legal process has certainly been simple enough.

Once completed the continuing directors/shareholders can then take their time considering what they want to do with the liability.

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Replying to DJKL:
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By plind123
25th Oct 2016 15:03

Thanks for your response.

The shares are going to be given to the existing directors who would like to have as little debt on the balance sheet as possible. In addition, since it is a very new business and the continuing directors/shareholders do not have capital to purchase the loan, and the departing director is not seeking payment for either the loan or shares I think the preferred option is simply to write it off. Do you know if there would be any negative implications in doing so? Thanks

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Replying to plind123:
By Ruddles
25th Oct 2016 15:42

A taxable credit is one negative implication that I can think of.

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