Hi all,
I have a limited company client which had one director and shareholder (A), owning, of course, 100% of shares. Recently, his wife was added as the second director and shareholder (B), owning 50% of shares. At the time this happened, A had an overdrawn DLA which normally he would clear to zero through processing a dividend. However, now that B is also a shareholder, the dividend would only be 50% due to A.
What is the best way to clear his DLA down to zero in this instance? Can B use the amount owed to her to offset against her husbands DLA account, so that both DLAs are cleared to zero?
Thanks
Oliver
Replies (9)
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I think you mean can the wife's dividend be credited to the husband's loan account. Yes of course it can if the wife agrees.
I would feel far more comfortable if the wife's dividend was paid into her bank account. What she chooses to do with it thereafter is a matter for her.
Declare a dividend in the normal way
Wife makes a gift of her dividend to Husband
Husband repays DLA with his dividend and her gift
Make sure it is all properly documented and not backdated (which is illegal)
That can be done either by actual payments into shareholders bank accounts which are repaid into the company bank account (my preference, can't be challenged as to the date it happened) or can be done directly as bookkeeping entries through DLA.
In either case, make sure sufficient reserves to cover the dividend, and if the latter route, make sure you have evidence of meeting/decision dates that are concurrent with the dates of the entries in the books.
I would rather prefer to pay 50% divided to both directors & transfer to their respective bank accounts.
Why wasn't a dividend paid prior to B becoming a shareholder? Surely this would have resolved the situation.
I am not sure why the paying of the dividend and thenthe wife gifting is any different from a written note from the wife transfering her credit to the husband's overdrawn loan account.
There may be insufficient cash in the company account to do this.
You have not said how the wife gained 50% of the shares. Was a gift from the husband or an issue of new shares. Nor whether this was during the company year in question or at a later date but I assume you have taken this all into account.
It's a belt and braces approach in the context of settlements legislation. It presumes, though, that the client has remembered to put their trousers on.