Shareholder Loans

The phrase "shareholder loans" implies that you are a corporation. If your business is unincorporated, the concept still applies, but you will track these transactions in your equity account instead of a loan account.

The shareholder account is set up on your balance sheet as a liability account, but it could have either a positive or a negative balance. If it has a debit balance, it is an asset to the company. It means that you owe the company money.

The following transactions will debit the shareholder loan account:

• The company pays for a personal expense.

• You draw money out of the company and intend to pay it back.

• You account for personal use of a company-owned vehicle. The following transactions will credit the shareholder account

• You spend your own money on business expenses.

• The company owes you a bonus or dividends but hasn't paid them out to you yet.

• You account for the business use of personal assets.

It's important to keep control over the balance of your share­holder loan account. In most tax jurisdictions, running a debit balance (ie., you owe the company money) carries tax implications. Were it not for these rules, company owners could keep "borrowing" from their companies instead of taking a salary, thereby paying no income tax. Your accountant can help you avoid this minefield.