Dividends from retained profits after loan

[pr1]

So any company which takes any kind of directors loan cash, or even a loan from a bank, cannot declare any dividends until after first profitable year?

it could pay back some of the directors loan to the director?

[richy]

The director (or bank) loan is basically irrelevant, it's the income vs expenditure that's key (a loan isn't income...no EBT comments plz!).

You can have debts and pay dividends, as long as you have assets in excess of the debts. Inevitably each listed company will be different to the next, so can't really lump them all in one basket.

You may be interested to read the BHS/Philip Green stuff with this in mind. Some would argue he did some clever/dodgy accounting, understating debts, to make it look like there was profits. He then declared a big dividend, and later on...oops, actually the company was in a much worse state than we thought.

Thank you @Maslins

Ok I understand better now.

So the loan was used on expenses, which then mean a loss this year.

In a future year when the loss carried forward has been passed (at that point I'll repay the loan) and then be able to declare dividends from profits again.

[richy]

it could pay back some of the directors loan to the director?

Good point, kind of debt re-financing.

[TheCyclingProgrammer]

As Maslin said, the loan isn’t really what’s important. The capital element of a loan just affects your cash flow. It sits on the balance sheet as a liability.

It’s the actual expenditure that affects your profit and loss. Of expenditure means you’re making a net loss for the year then this will reduce any retained profits from previous years.

Only once there is a sufficient balance in the company reserves will you be able to take dividends again.

The loan itself can be repaid whenever the business has the money to do so.

[richy]

Thank you @TheCyclingProgrammer

yes, my retained profits are gone... at least can carry forward the loss on that expenditure.

[WTFH]

come back and let us know what your accountant says!

[richy]

come back and let us know what your accountant says!

Yes, he said the same as you all! He said wait until the business is profitable again and there are taxable profits, after which there will be retained profits for dividends.

[Scruff]

Capitalise the loss, and then amortise it as an expense as the business generates profit. Matching principle

[northernladuk]

Capitalise the loss, and then amortise it as an expense as the business generates profit. Matching principle

I've no idea what any of that means but it got me mildly aroused.

[Scruff]

I've no idea what any of that means but it got me mildly aroused.

Yeah, I figured. Ask your accountant, they will explain 🤣