Limited Company: Legal fees for Litigation

**malvolio** · 11 March 2017, 07:50

Originally posted by rohanks View Post

Hi All,

In 2015 my Ltd company paid a quarterly dividend of £10000.00 to me as Director. I used this dividend to purchase equity in another limited company set up by my then business partner.

My former business partner then departed with my investment in what could be described as a scam.

After speaking with my solicitor, he identified that I do have a legal option as the paperwork prepared by my former business partner in respect of the equity share sale contains errors and has left him exposed.

My question is....as the source of my investment came via a dividend from my legitimate company which I then used to invest in 'scam ltd' can my legal fees be paid by my ltd company? I am asking this as my solicitor suggested that they could.

Any help or advice would be greatly appreciated.

Can't see his reasoning at all, which is a little scary. The dividend became your money when it was paid and therefore nothing to do with the company, which is a separate "person", legally. As such it has no responsibility for how you spend your money and your legal fees wouldn't come close to being "wholly and exclusively" business expenditure.

**teapot418** · 11 March 2017, 07:51

It sounds very unlikely.

If you'd used your dividends from, say, your BP shares to invest in something else, BP wouldn't be paying your legal fees.

Once you've withdrawn the dividend, it becomes your personal money. It was you, personally, that made the investment, not yourCo. The test is whether any expenditure is wholly and exclusively for your business - in this case it's hard to argue that it is even remotely related to your business.

**SueEllen** · 11 March 2017, 11:05

Did you explain clearly to the solicitor that it wasn't your company that invested in the other company but you personally? If not I can see how the solicitor can get confused.

**northernladuk** · 11 March 2017, 11:33

Originally posted by rohanks View Post

Hi All,

In 2015 my Ltd company paid a quarterly dividend of £10000.00 to me as Director. I used this dividend to purchase equity in another limited company set up by my then business partner.

This is where its all gone wrong. The company paid you a dividend of 10k. It's now YOUR money. You used YOUR money to purchase equity in another company.

It also didn't pay it to you as a director. It paid it to you as a shareholder.

These points as very fundamental. If you can't understand or explain it properly it's no wonder your solicitor is confused.

**rohanks** · 11 March 2017, 12:02

That was my understanding too. Just wanted to make sure that there wasn't any information out there that I wasn't aware of.

Thanks very much for responding all. Appreciated.

rohanks

Limited Company: Legal fees for Litigation