Illegal divs and directors loan accounts

Illegal divs and directors loan accounts

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Hi

A client has declared too much in dividends (paid weekly with correct paperwork in place) and as a result, the Ltd company has negative reserves. (before I got involved!)

However there is a credit balance on the DCA from capital put into the company to start up with. What's the best procedure?

1) Net the dividends against the DCA reducing the negative  - this effectively reclassifies the dividends which I didn't think was allowed and may cause problems with dividend payments next year?

2)Leave all as it is and deal with it next year

3) Any other options 

It's had my head going round in circles today. Any help appreciated.

Thanks 

Replies (4)

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By petersaxton
09th Feb 2011 22:15

Distributable reserves information

"A client has declared too much in dividends (paid weekly with correct paperwork in place) "

How can the client have declared too much if the paperwork was correct. What distributable reserves where shown when the decision to pay a dividend was made?

 

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By pipper01
09th Feb 2011 22:27

Reserves

Should have said this is the first year trading so no brought forward reserves. However they have management accounts which show enough profit available and projected profit to year end. Events in final two months of year made projections incorrect.

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By geoffmw
10th Feb 2011 07:37

thats not therefore a problem

Assuming no divis were paid in those final 2 months.

 

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By petersaxton
10th Feb 2011 07:48

Actual not projected

Dividends shouldn't be based on projected profits. They should be based on actual profits. If the profits had been achieved and dividends based on them - it doesn't matter if later losses make the distributable profits negative.

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