Mixing private and business finance is still common.
Company and owner’s money can be mixed in following cases:
- company pays owner’s private expenditure, effectively paying private costs to owner’s suppliers;
- owner withdraws cash from company’s bank account;
- owner receives loans in one of following ways:
- more smaller payments are made or
- written contract is non existent or
- contract has a long draw period or
- owner does not pay installments or payments are made irregularly or
- interest rate is low or
- other loan conditions are not common and would not be accepted would company grant a loan to third persons.
There is high probability those “loans” would be levied taxes, late interest and substantial fines in case of tax control. Money received can be treated as:
- salary, if owner is employed at the company;
- dividend payout or
- other income of a natural person.
We strongly advise not to execute such payments to owner and suggest following:
- private expenditure must be paid by owner from his private funds;
- cash withdrawals are possible only if company pays small suppliers in cash;
- loan to owner can be granted on arm’s length principle only – under usual market conditions.
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