Company guarantee of loan to shareholder

Company guarantee of loan to shareholder

Didn't find your answer?

Under Company Law can a private company guarantee a bank loan to a shareholder who is also director (the loan will be used to buy the shares in the company)?  Is it OK to assume no tax consequences unless the Company pays out under the guarantee?  Thanks for any help with this.

Replies (5)

Please login or register to join the discussion.

avatar
By The Limey
04th Feb 2014 14:16

Get legal advice on this one - it's a very dodgy area. Some lawyers will advise that there are specific structures that can be used to get past the prohibitions in Chapter 2 of the Companies Act 2006 - but so far as I'm aware they have not been challenged in court. 

Thanks (1)
By johngroganjga
04th Feb 2014 14:55

Yes the company can guarantee a third party's liability if it wants to (it would obviously be disclosable in its accounts as a contingent liability), but the fly in the ointment here is that the proposed guarantee is in order to provide financial assistance for the purchase of its own shares, which is prohibited by the Companies Act.

Thanks (1)
avatar
By pengles
05th Feb 2014 10:32

Financial assistance

Thanks John.  I had it in mind that the Financial Assistance problem was removed for private companies so in view of your comment I Googled the point and found this: "On 1 October 2008 the financial assistance provisions of the 1985 Act were repealed in respect of private companies (and their subsidiaries). This now means that private companies are not prohibited from providing financial assistance for the purpose of the acquisition of shares in themselves."  Is it not that simple?

Thanks (0)
By johngroganjga
05th Feb 2014 10:39

You are right that the rules have changed but I believe that there are still hoops to go through before assistance can lawfully be provided. I am sure it is not carte blanche for companies to dissipate their capital in this way without let or hindrance.

Thanks (1)
avatar
By kalafair
03rd Jan 2016 18:48

company guarantee for shareholder

My bank is loaning me £500k personally. They have asked that a company in which I am the sole shareholder and director guarantee my loan and give the bank a debenture. The bank say I have to sign a special form for this. Is this legal and correct.

Thanks (0)