Using Company money to invest in startup

[Jog On]

Can't company A buy an equity stake in company B instead of a loan?

[Fred Bloggs]

Thanks but this is where I get lost.
If company A is say, 10k in profit and loans company B 5k to get started, then company B fails isn't company A still operating in profit and can therefore still pay dividends? What happens to the 5k that company A has lost in terms of reporting it?

It's reported in the end of year accounts and if company A was still in profit then dividend could be declared. If trading at a loss, no dividend can be paid. However, IANAA etc... and that is a lay persons view of it.

[Gaz_M]

Yes, it means no dividends can be paid while company A is trading at a loss. Dividends are paid out of profits.

Thanks but this is where I get lost.
If company A is say, 10k in profit and loans company B 5k to get started, then company B fails isn't company A still operating in profit and can therefore still pay dividends? What happens to the 5k that company A has lost in terms of reporting it?

[Fred Bloggs]

Good detailed response - thanks.

What I meant was how is the loss reported in Company A's accounts? Would there be any further implications for the director of Company B?

Yes, it means no dividends can be paid while company A is trading at a loss. Dividends are paid out of profits.

[Gaz_M]

Then company A has lost its money. What else?

Good detailed response - thanks.

What I meant was how is the loss reported in Company A's accounts? Would there be any further implications for the director of Company B?

[NotAllThere]

Then company A has lost its money. What else?

[Gaz_M]

Register Limited Company B.

Loan the money from Limited Company A to Limited Company B.

What happens if Company B falls flat on its ar*e and can never pay Company A back?
Serious question because I am thinking of doing the very same thing.

[youwhut]

Register Limited Company B.

Loan the money from Limited Company A to Limited Company B.

[JaChNo]

Hi All,


This is my first post so bear with me.

Basically I want to set up a new company with a family member, This new business will have nothing to do with my current IT consultancy (It involves selling hand made products online).

My question is can I use some of the money I have sitting in my company to invest in the new company with out have first to draw it out and pay tax on in. In a nutshell the company will own part of the new company?


This is not an attempt at a tax dodge, I just want to find the most effective way to start up the new company.

Thanks in advance