Articles by Anna Loginova.
The shareholder’s current account (i.e. the net balance of funds introduced and withdrawn by the shareholder) is one of the most common things that our clients ask us about.
The most frequent questions that we receive are: How did this occur? What does the movement between this year and last year represent? Why does the company owe me money? Why do I owe money to the company?
When a business starts, it does not have its own funds, so naturally shareholders contribute money into the company. This becomes a liability from the company’s point of view. The opposite position occurs when the shareholder withdraws funds from the company. This becomes an asset from the company’s point of view.
The movements in the shareholder’s current account are what have been contributed or withdrawn during the year by the shareholder.
More than one shareholder
If there are two or more completely separate (unrelated) shareholders in a company, it is extremely important to treat their respective shareholder’s current accounts carefully, as this is the actual money that belongs to each shareholder. If this has not been recorded correctly, or a mistake is made, the financial consequences can be significant.
Shareholder’s account in credit
If a shareholder’s current account is in credit (i.e. the company owes money to the shareholder), it can be considered as a loan to the company. Provided that the company has sufficient cashflow, the shareholder can withdraw funds up to the balance of the account without any tax consequences.
Shareholder’s account overdrawn
Issues can occur if the shareholder’s current account is overdrawn. There is a requirement to charge interest on the overdrawn shareholder’s current account. Otherwise, it could be subject to fringe benefit tax (FBT) because the shareholders receive a benefit from the company by using the funds.
If you find yourself in this situation, or you have any other questions about your shareholder current account, please get in touch with your GRA Client Services Manager so we can provide the most appropriate solution, applicable to your individual circumstances. (If you are not a client of GRA, book a meeting to discuss how we can help you – the initial meeting is free of charge if you are new to our practice.)
This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request
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