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Loans to Directors and Related Parties

Money moving between a company and its directors is the most common informal practice in small companies, and the most restricted thing in the Act.

Why this is regulated so tightly

In a small company the directors and the shareholders are the same people, so money moves between the company and them casually — a director pays a company expense personally, or takes money out and returns it later.

The Act restricts this because a company is a separate legal person with its own creditors. Money flowing out to directors is money not available to pay what the company owes, and the law is deliberately strict about it.

The practical result is that arrangements which feel completely normal inside a family company can be restricted, and the auditors will report on them.

What needs care

  • Loans to directors and connected persons are restricted, with limited exceptions. Assuming it is fine because it is your own company is the common error.
  • A director lending TO the company is treated differently from the company lending to a director, and needs its own documentation to avoid being treated as a deposit.
  • Related party transactions — dealings with entities your directors are connected to — need board approval and disclosure.
  • Everything at arm's length. A transaction with a related party on terms you would never give a stranger is what draws scrutiny.
  • Disclosure in the accounts. These transactions get reported, so the position is visible.

Written 5 September 2026. Government requirements and portal behaviour change — message us to confirm before you rely on any date or figure here.

The practical advice

Keep the company's money and the directors' money genuinely separate, and where a transaction between them is necessary, document it before it happens rather than explaining it afterwards to an auditor.

If money has been moving informally for years, that is worth cleaning up rather than continuing. Tell us what the actual position is — we would rather help you regularise it than have it surface in an audit or a due diligence.

Common questions

It is usually a director advancing money to the company, which is treated differently and needs recording. Do it properly and it is straightforward.

That is a related party transaction and possibly a restricted loan, depending on the connection. Tell us the structure before it happens rather than after.

Common, and worth regularising. Send us the position and we will tell you what it looks like and how to tidy it.

Take it seriously - auditors report on it and it flows into the accounts. It is usually fixable, and much easier to fix early.