capitalise Directors Loan Account

capitalise Directors Loan Account

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Dear Readers

I am in the process of pulling together my year end accounts for my 1st year of trading as a ltd comany.

On my balance sheet i am showing a substantial directors loan account and i was thinking that it would have been better to have shown this as share capital - to capitalise it.

Now can i do this at this late stage?  i am fully 8 months past my year end and need submit the accounts asap.  Companies house do not know about the shares as they did not exist at the time of my annual return -- and effectively now wishing i had made this decision months ago.  (accounts year end 31July 2012)

Can i capitalise the DLA and issue shares to myself -- or does it not make a difference.

My apologies in this question, this year i cannot afford an accountant, but plan to have one for my second year going forward

Many thanks

David

Replies (5)

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By Darren Loring
31st Mar 2013 12:26

Why

I may be missing something, but why issue more share capital - the greater the number of shares the larger your personal liability to the company (in the event of liquidation).  Also the Director's loan balance is there for you to draw down as cashflow allows - you cannot do this if you move it into shares.

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Replying to andy.partridge:
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By daviddnk
31st Mar 2013 14:04

make the balance sheet more attractive to banks / suppliers

Darren Loring wrote:

I may be missing something, but why issue more share capital - the greater the number of shares the larger your personal liability to the company (in the event of liquidation).  Also the Director's loan balance is there for you to draw down as cashflow allows - you cannot do this if you move it into shares.

My reason was that it made things look better on the balance sheet, i was worried that showing the directors loan account as a debt due after 1 year made the balance sheet worse than showing it as shares issued, as a new company i thought that it might look bad to suppliers or banks

 

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By andy.partridge
31st Mar 2013 14:15

Accountants

Full marks to you for having a go yourself, but a little knowledge can be a dangerous thing. You say you can not afford an accountant. Equally, can you afford not to have one if they are going to stop you making costly errors?

In answer to your question, you can not rewrite history. Your balance sheet must show the position at the balance sheet date and not a wheeze you have rightly or wrongly thought up after.

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By zebaa
31st Mar 2013 16:17

I doubt...

...your companies suppliers or the bank will to even look at the balance sheet.

If your company has a negative balance sheet you should make a statement that the business is a going concern - I take it that is so - and perhaps a few words why you think that.

 

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By hallsi
31st Mar 2013 21:38

Take advice
David, you ought to ask yourself what benefit this change will bring. Your post seems a bit vague on the thought process. Suppliers and banks will not be put off per se. There could be instances where transferring debt to equity would perhaps be advantageous such as if trying to attract another party to invest in the company (to assure them that you're not simply going to repay your DLA as a priority out of their funding) or perhaps when trying to obtain lease finance where the funder requires the company to have x times coverage in terms of net assets compared with the leased asset value. I think a bit of professional advice here will go a long way to helping you make an informed decision here. As mentioned it is not possible to make this change to the accounts that will shortly be due for filing, it could however be achieved in the current accounting period.

Hope this helps.

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