Directors Loan Accounts: The Board Resolution and Records You Need

A director's loan account records money that moves between a director and their company outside salary, dividends, and expense repayments — for example, when you take cash out of the company that isn't a dividend, or when you put your own money in. Most guidance on the topic focuses on the tax (the s455 charge, benefit-in-kind rules). This guide covers the side that's just as important but far less discussed: the company-law governance of a director's loan — the resolution you may need and the records you must keep.

This is a documentation question, not tax advice — for the tax treatment of a director's loan, speak to your accountant.

When a Director's Loan Needs Members' Approval

Under section 197 of the Companies Act 2006, a private company generally cannot make a loan to a director (or give a guarantee or security for such a loan) unless it's approved by an ordinary resolution of the members.

This rule is about the company lending to a director. The reverse — a director lending their own money to the company — doesn't need members' approval under section 197 (though you should still document it and record the balance, since it's the other side of the same director's loan account).

In an owner-managed company where the director and the shareholder are the same person, that resolution is a formality — but it still needs to exist as a record. The approval is given by an ordinary resolution (a simple majority), and a memorandum setting out the loan's main terms should be available to members before or when the resolution is passed (section 197(3)–(4)).

See our board resolution template guide for the wording of an ordinary members' resolution approving a loan to a director.

The £10,000 Exemption

There's an important exception. Under section 207 of the Companies Act 2006, members' approval is not required for small loans — where the total of loans (and related transactions) to a director does not exceed £10,000.

So for a modest director's loan under £10,000, you don't need a members' resolution under section 197. But — and this is the point most people miss — you should still document the loan: the date, the amount, the terms, and a board record acknowledging it. The exemption removes the approval requirement, not the need for a clear paper trail.

The Records to Keep

Whether or not a members' resolution is required, keep these records straight:

• A clear record of the loan itself — date drawn or repaid, amount, and any agreed interest or repayment terms.
• A members' ordinary resolution approving the loan, where it exceeds £10,000 (or where your articles require approval regardless of amount).
• A board record acknowledging the loan and its terms — even for small loans within the exemption.
• A running director's loan account balance so you (and your accountant) always know whether the account is overdrawn and by how much.

The reason this matters beyond box-ticking: if the company later runs into financial difficulty, an overdrawn director's loan account is one of the first things an insolvency practitioner examines. Loans that were properly authorised and documented are straightforward; undocumented withdrawals are where directors get into trouble.

Why the Governance Side Gets Missed

The tax treatment of director's loans — the s455 charge on overdrawn accounts, the benefit-in-kind on interest-free loans — gets all the attention because there's money at stake and accountants flag it. The company-law side is quieter, but it's the part that's genuinely the director's own responsibility:

• Your accountant will usually handle the tax reporting.
• But the resolution and the records are a company-secretarial duty — and with no company secretary, that falls to you as director.

A clean director's loan account is a documentation discipline: authorise it where required, record it always, and keep the running balance accurate.

Common Mistakes

Assuming small loans need no paperwork at all. The £10,000 exemption removes the members' approval requirement — it doesn't mean "no record needed". Document every loan.

No members' resolution for a larger loan. A director's loan over £10,000 from a private company generally needs an ordinary resolution of the members. Skipping it is a breach of section 197, even if you're the only shareholder.

Treating withdrawals as they happen with no running record. Drawing cash ad hoc without tracking the loan account balance is how directors end up with an unexpectedly large overdrawn account — and a tax bill — at year end.

Confusing the company-law and tax questions. They're separate. Members' approval is a company-law matter under the Companies Act; the s455 charge is a tax matter. You need to satisfy both, but they're answered differently.

How CompanyMinder Will Help

CompanyMinder is being built to handle the governance side of director's loans — flagging when a loan needs a members' resolution, generating the resolution and the supporting record, and keeping a clear, dated history of the loan account so the paperwork is always in order. The tax treatment stays with your accountant; the company-law records stay clean and in one place.

Sources

• Companies Act 2006, s.197 — Loans to directors: requirement of members' approval
• Companies Act 2006, s.207 — Exceptions for minor and business transactions
• GOV.UK — Director's loans