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.
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.
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.
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.
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.