Hypothetical Business Question

[walshie]

This is just hypothetical at the moment and obviously I'd seek professional advice before going any further, but I thought I'd kick around an idea here.

 

Person A has a business idea and forms a company (Company B) but needs a decent amount of capital to get the ball rolling,

 

Person A himself is in a position to fund Company B, would it be legal/ethical/practical for Person A to fund Company B himself, with the company paying Person A back monthly like a bank loan? (Obviously with a suitable agreement in writing.)

 

If so, what interest rate could Person A charge for this? Would it be limited to what banks charge? Obviously the higher the rate, the more Company B can write off against tax and the more interest Person A makes, but don't want to be ridiculous.

 

Any info much appreciated.

Edited March 25, 2017 by walshie

[KFC]

As far as I understand it that is exactly how many companies reduce their tax liability, especially offshore companies and LLP's having their business 'concluded' offshore and then loan the money back to their UK sited company.

 

Whether it's ethical or not is up for debate.

 

Also the old company ABC trick, A makes a profit, B breaks even and C makes a loss. A loans C a load of dosh to pay for its debts that it owes to B. All three companies have the same directors. C can then flog itself to A for £1 and is wound up and A or B can then set up a new C.

Edited March 25, 2017 by KFC

[button]

If Person A is a director of company B funds can be injected as a directors loan

http://www.accountingweb.co.uk/any-answers/funding-a-business-with-a-directors-loan-rather-than-with-equity

[Lloyd90]

If Person A is a director of company B funds can be injected as a directors loan

http://www.accountingweb.co.uk/any-answers/funding-a-business-with-a-directors-loan-rather-than-with-equity

I also believe directors are allowed to charge interest on loans they make to their company.

 

You may want to speak to an independent advisor.

As far as I understand it that is exactly how many companies reduce their tax liability, especially offshore companies and LLP's having their business 'concluded' offshore and then loan the money back to their UK sited company.

 

Whether it's ethical or not is up for debate.

 

Also the old company ABC trick, A makes a profit, B breaks even and C makes a loss. A loans C a load of dosh to pay for its debts that it owes to B. All three companies have the same directors. C can then flog itself to A for £1 and is wound up and A or B can then set up a new C.

Would not all 3 companies pay tax on income?