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Loans to directors

Companies may not normally make loans to their directors. There are limited exceptions, first laid down in the 1980 Companies Act and replacing those contained in the 1948 Companies Act. These exceptions fall into two main categories. The first deals with companies the principal business of which is the lending of money, distinguishing between moneylending companies and banks. Moneylending companies may make loans to directors if these loans are in the normal course of business and the director fulfils th conditions imposed on borrowers generally. There is an upper limit of £10,000. Banks may also lend to their directors on normal commercial terms and without limit, unless for house purchase, where the limit is £50,000.

The second category of permissible loans is more tightly drawn and reference should be made to the Act. Distinctions are made between private and public companies, the rules bearing more heavily on the latter. Generally speaking, with reference to publie companies the only allowable loans and quasi-loans are those to holding companies which are directors, loans to enable lirectors to properly perform their duties. provided that such loans are approved by the company in general meeting, and quasiloans up to £1,000, which are repayable within two months.

Reference: The Penguin Business Dictionary , 3rd edt.