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Alex J.
Alex J., Solicitor
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Where a ltd Co has 2 x 50 shareholders and one sole director,

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Where a ltd Co has 2 x 50 shareholders and one sole director, if the accounts show that the director (50% shareholder) has a directors loan from the ltd company, should he of been required to get permission in writing from the other 50% shareholder for a loan? What are the rules?
Submitted: 1 year ago.
Category: Law
Expert:  Nicola-mod replied 1 year ago.
Hello,
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Expert:  Alex J. replied 1 year ago.
Hi
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
When you say directors loan, is it to the company or from the company?
Was the loan approved by the shareholders or at a board meeting?
Kind regards
AJ
Customer: replied 1 year ago.

Hi AJ

No, the loan was not approved at a board meeting and a meeting has not taken place. I am a 50% shareholder and did not authorise this loan. The director was paid the loan from the company to himself. He is also a 50% shareholder.

Expert:  Alex J. replied 1 year ago.
Hi, Thank you.
Did he just go to the company bank account and help himself?
Kind regards
AJ
Customer: replied 1 year ago.

Yes this is correct. It was for 10k. He said its fine as it's a loan but I dont agree with the way it happened Yes he just went to the bank.

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Technically what he has done is a breach of the following sections of the Companies Act 2006:
- S.175 - Failure to avoid conflict of interest;
- S.177 - Failure to declare interest in a proposed transaction;
The company would have a derivative action that you could bring under S.260 of the Companies Act 2006 - but this would likely be expensive - and a wasted exercise especially if he is prepared to pay it back.
You have to ask yourself practically are you prepared to continue working with this individually? If so then the best way to safe guard yourself is to:
- Have a shareholders agreement - to define restricted activities;
- Take away control of the bank accounts;
- Create a proper loan document so he repays the money in an orderly fashion and to an agreed deadline.
If you feel you cannot work with him anymore then you have to consider other options for example buying him out.
I look forward to hearing from you.
Kind regards
AJ
Alex J., Solicitor
Category: Law
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Experience: Solicitors 2 years plus PQE
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