LAQC Equity protection

[ActionMan]

Went to GRA presentation and someone from them talked about protecting your equity in an LAQC by capital dividend to a trust.

Apparently you can still use equity to purchase properties but this can not be touched if the director had a personal liability.

Anyone can elaborate on this?

[roseneath_rat]

I'd be surprised if it were held up under IRD scrutiny, or by receivers.

If the company were wound up & found to have made preferential payment to directors/shareholders/creditors it would likely be in the powers of the receiver to insist that these funds be repaid.

Dividends should probably not be paid if a company is making regular losses anyway!

[CJ]

There are rules for when dividneds can be made (not make the company insolvent and can meet its cashflows i think). Provided you do this before the bad event happened in which the director had the personal liability there should be no issues.

Not sure how you could still use the dividend unless it is reatined by teh company as a loan back.

All the "equity" in my LAQC is in the form of a loan from my trust. Therefore the Trust is asset rich and the LAQC sitting close to zero in terms of equity. it also means I can transfer the LAQC to the trust for little payment.

[David_W]

Nice CJ - that is the way I did it too. Equity "in" my LAQC is solely from loan from my business trust. Keep the equity in the LAQC as low as possible to minimise your personal exposure.

And yep - I understand that Companies must pass the "solvency test" under the Companies Act 1993 before declaring a dividend.