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Joshua, Lawyer
Category: Law
Satisfied Customers: 30007
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I am incorporating as a private company limited with shares

Customer Question

I am incorporating as a private company limited with shares alongside my 4 other partners. One of my partners son is willing to put £100,000 into the company. Either as a loan or an investment in shares, provided that the company can offer him an acceptable level of security. Could you advise us on the most appropriate method to secure the finance?
JA: Where are you? It matters because laws vary by location.
Customer: United Kingdom
JA: What steps have you taken so far?
Customer: Not much
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: No
Submitted: 8 days ago.
Category: Law
Expert:  Joshua replied 8 days ago.

Hello and thank you for your question. My name is ***** ***** I will be very pleased to assist you. I'm a practising lawyer in England with over 15 years’ experience. Please be aware that although I will endeavour to reply to you promptly, I am also in full time private practice and so I may not be available to respond immediately and it may also take me a few minutes to prepare a reply. The site will notify you as soon as I respond. I look forward to working with you to answer your question fully.

  1. May I confirm of the company will have any assets following incorporation please? For example, a building, goods and so on?
  2. if not, would any of the directors of the company be prepared to offer a personal guarantee of their own assets for the loan?
Customer: replied 8 days ago.
We have each put 20,000 into the company so therefore a total £80,000 in its own bank account.
Expert:  Joshua replied 8 days ago.

thank you. The company could offer a debenture in respect of its bank account which is a form of security over the company's bank account but the lender may not be satisfied with this because a bank account balance will and can of course fluctuate over time. The approach of bank would likely take in this scenario would be to ask one or more of the directors to provide a personal guarantee in respect of the loan. This would give the lender access to the relevant directors personal assets including house and any assets they hold in their own name. Of course, this is a risk from the point of view of the director because it means they are personally risking their own assets in guarantee of the loan. This would ultimately be a business decision on the part of each director and it may be a requirement of any director offering security that all of the other directors offer a joint security with them so that the obligation is shared between them

Customer: replied 8 days ago.
Does that debenture on the companys bank account fall under a floating or fixed charge then? And just to clarify, would you advise the debenture over the companys bank account or the personal guarantee over one or more of the directors assets? I'm assuming they are seperate approches.
Expert:  Joshua replied 8 days ago.

The debenture can take effect as a floating charge. As regards ***** ***** be recommended, it rather depends upon from which perspective the question is asked. From the point of view of US directors, offering a debenture will be preferable because in the event of a default, the creditor will be limited to the assets of the company against which to make a claim. If the question is asked from the point of view of the creditor, then a personal guarantee especially one given by more than one director is likely to be significantly better because not only could they make a claim against the company's assets, but they could also come after one or more of the directors according to who was given the personal guarantee and access personal assets they hold.

Obviously, a personal guarantee is only as good as the person giving it and therefore its value will depend upon effectively the net worth of each of the directors of the company in question.

Customer: replied 7 days ago.
Thank you. Sorry for further questions. So are you saying a debenture floating charge over the company's assets (which is the company's bank account) would realistically be fair for both the lender and borrower? However, it should be noted that the bank account will fluctuate so therefore a personal guarantee gives further security for the lender? Thank you
Expert:  Joshua replied 7 days ago.
It is not for me to say if it is fair. This is a matter of negotiation. These are the two principal options. It is then up to each of you to negotiate terms
Expert:  Joshua replied 7 days ago.

I hope the above is of some assistance but if you have any further questions, please revert to me.

Expert:  Joshua replied 5 days ago.

I trust the above was of assistance and that you do not have any follow up questions for now. If there is anything else I can help with please reply back to me though.

Expert:  Joshua replied 4 days ago.

Thank you again for visiting JustAnswer and see you again in the future I hope.