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LTD Companies Directors Loans / Bad Partnership

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Hi there.


I will freely admit I'm still a total novice with this situation, and some advice and help would be greatly appreciated.


What the Situation?


Well in 2014 I opened a business with a close family friend, we went into the venture as 50/50 partners and both with substantial directors loans to the company. From what I recall we had no directors agreements, or at least no custom directors agreements.


Sadly however due to some good luck, several mistakes, and some clever moves my business partner has actually ended up with a LOT more directors loan owned to him by the company.


Taking into account he still lives at home with family his bills are extremely low meaning he never takes any of his large directors loan which increases each year with considerable interest.


My worry is that if we come to sell the business in 10 or 20 years time then his directors loan will be SO HIGH that either the business won't be able to pay, or my 50% shares will simply get wiped out by his directors loan amounts?


That for example if we sell our business property for £200'000, then my 50% share should be £100,000. However if the business owes my partner £400,000 in directors loans then basically he will want his £400,000 back first then we spilt whatever is left?


Is by 50% protected, or do I have to pay him his full directors loan back before I get anything?


If we sell the company / fall out and the company has to pay him his full directors loan back before I see any profits then basically staying in the company isn't worth it for me. That if he can demand the company pays him his full directors loans back before we split any profits of the sale, then effectively I'm not an owner I'm an employee.


If the worst happens in the future do I get a fair 50% of the stock / business / property, or will I be stuck paying this partner a huge amount of loan repayments first? Then there will be nothing left, so in theory my share of the business is 0% because his loan amount will wipe out everything first.


Can I force my partner to start taking his directors loan?


Can I write off his directors loan if the company doesn't have the money to pay it?


What can I do to protect my 50% form being totally swallowed or over shadowed by his huge loan amounts?


Thanks for any advice.


























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By Accountant A
19th Oct 2019 14:38

Your problem arises from not having taken professional advice at the time you set up. The problem is therefore unlikely to be solved by not taking professional advice now.

My advice? Take some professional advice.

Clue: the issues sound more legal than accounting.

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