You've started your own company and you own, for example, 100 x £1 shares. You want to invest some money in the business to get it started, lets say £5000. What is the best way to do this?

Issue more shares? Lend the company the money?

I would be interested to hear your views.

I think your first port of call would be your accountant or tax advisor.

However I believe that if you subscribe for shares then should your business fail then you can offset the capital loss against future income, i.e. you can recoup 40% of your loss against income tax not future capital gains. I'm not up to date on this but I know it used to be so. Hence contact your accountant or tax advisor. With the loan method you may charge interest but of course if your company fails then you might not see any cash back. I'd be interested if anyone can confirm that this is still the case.

Also, start ups need to preserve their cash so I would lease where possible rather than buy, but individual circumstances may dictate otherwise.

Whilst this situation does not apply to myself I was discssing a similar situation with a client and we were trying to decide on the best solurion for a new business.

A couple of the points that we discussed were as follows-

If you were to take the money as paid up shares in a Limited company then this money is at risk if the company was wound up.

If you lend the company the money then we believed that as a director of the company you would be a primary creditor. As such you would be at the front of the queue to receive any monies available from the company once the assets are liquidated.

To that affect it appeared that the loan may be slightly safer (depending on circumstances).

However, this also raised the issue of the balance sheet showing a creditor. The client argued that they may be requested to supply accounts to suppliers or contractors.

Obviously I suggested that the client speak to an accountnt to clarify the situation. I was looking to get a grater understanding of the situation myself.

That is not true as directors' loans are the same as any other unsecured creditor.

If you are entering into this type of arrangement with a view that the company may fail and you wish to be at the head of the queue then security should be taken with a charge over the assets which will put you higher up the pecking order. The problem with doing this is that suppliers and bankers that do a credit check on the company will see that you have secured your own position and if they have any sense will ask for the same security themselves.

If you put funds into a company in the form of share capital any monies that you take out will be in the form of drawings or salary which will be liable to tax and Nic however if you put monies in as a director's loan you can repay it free of tax.