Why the distinction matters.
WHAT SEPARATION MEANS
The company is a distinct legal person, with its own assets and obligations.
WHAT THAT REQUIRES
Separate bank accounts Separate records Proper documentation of any transaction between you and it
WHAT COMMONLY GOES WRONG
Business income into personal accounts Personal expenses paid by the company Withdrawals without documentation Assets used by the company but owned personally
WHY IT MATTERS
Tax consequences Difficulty demonstrating the company's position Exposure in disputes Problems during due diligence
WHAT WITHDRAWALS SHOULD BE
Salary, properly taxed Dividends, properly declared Repayment of a documented loan Reimbursement of documented expenses
WHY DOCUMENTED
Undocumented withdrawals are treated adversely.
WHAT A DIRECTOR'S LOAN IS
Money owed between the company and a director, in either direction.
WHAT IT REQUIRES
Recording, and attention to the tax treatment.
WHAT ASSETS USED BY THE BUSINESS REQUIRE
Clarity about ownership.
WHAT EXAMPLES LOOK LIKE
A vehicle Premises Equipment
WHAT TO DOCUMENT
Whether the company owns, leases or uses them.
WHY
It affects accounts, tax and any sale.
WHAT TO ESTABLISH FROM THE START
Clean separation.
WHY
Untangling it later is expensive.
