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Have a situation where the directors and shareholders of a close have historically taken voted dividends by way of a direct transfer to their personal bank accounts in accordance with the dividend vouchers.

2 of the 5 directors' for personal reasons would prefer to have their dividends credited to a their current account with the company. ( no cash cahanging hands)

The balance on their current account is nil or  small cr balance.

The questions are:

Is it within the law to do so?

If it is than can only a propoetion of the director/shareholders opt to have their dividends credited to their current account?

Any response would be welcome.

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Yes, this is ok

The dividends can be credited to the loan account no problem.

Change the dividend minute to say "dividend paid or credited to the loan account" and there is no problem.

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But watch

the payment date. If timing is critical, to say eliminate an overdrawn loan account (I appreciate that this is not so in this case) it is important to make a proper entry in the company's books at the time showing the payment of the dividend and credit to the loan account. A year-end journal entry, even purporting to reflect the dividend as paid at an earlier time, is not sufficient.

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Thanks for the replies so far

I thought that CA2006 made it illegal to create a credit balance on directors' current account by way of crediting dividends.

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credit balance on CA?

y would cos act 06 make a credit balance illegal?

if a director wants to lend money to his company instead of it borrowing from a sly bank - y not?

i think there is some "misunderestimating" of the position?

 

 

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abellsjms

I do hope that you are right abellsjms otherwise many of us with be up the creek.

Never heard such rubbish

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abelljms...

Please read thequestion.  Cannot 'credit' balance on a direcors' account by CREDITING the account with dividends.

Course the director can loan the company money as his taxpayer backed bank won't. The point is that a dividend must pe paid by way of a check or bank transfer  and not by way of a book entry.

Book entries are Ok to clear  debit balance.

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So !!

So we draw a cheque on the company,pay into personal bank then write a cheque to the company.

If the company is in an overdraft position it will incur interest and charges for the issue of the cheque.

If you are right anon I think it is the bankers writing the co act 2006, maybe you would be kind enough to provide

us with the refs to support your view as I am afraid you are in a minority on this one.Thank you in anticipation

 

 

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Utter Rubbish!

See this thread for starters - and there are loads more.

http://www.accountingweb.co.uk/anyanswers/dividends-loan-account

 

 

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