Directors loan accounts and dividends, spouses

Directors loan accounts and dividends, spouses

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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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By johngroganjga
23rd Apr 2018 09:57

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.

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By andy.partridge
23rd Apr 2018 10:07

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.

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By practice for sale
25th Apr 2018 09:43

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.

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By @inforubina
25th Apr 2018 10:12

I would rather prefer to pay 50% divided to both directors & transfer to their respective bank accounts.

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7om
By Tom 7000
25th Apr 2018 12:32

What Andy partridge above said

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By John Murdock
25th Apr 2018 13:15

Why wasn't a dividend paid prior to B becoming a shareholder? Surely this would have resolved the situation.

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By pauljohnston
26th Apr 2018 08:36

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.

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Replying to pauljohnston:
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By ocooper
26th Apr 2018 09:51

Thanks Paul.

The wife gained 50% of the shares as a gift from the husband. It was during the year in question. Does this affect your response?

Thanks

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Replying to pauljohnston:
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By andy.partridge
26th Apr 2018 11:28

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.

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