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 properly declared 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).

If a director lends to the company and takes security for it — a charge over company assets, rather than an unsecured loan on the director's loan account — that is a registrable charge, and it must reach Companies House within 21 days or the security is void against a liquidator or administrator. See our guide to the register of charges and form MR01.

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 it must not be passed unless a memorandum has been made available to members setting out the nature of the transaction, the amount of the loan and its purpose, and the extent of the company's liability under any connected transaction. For a written resolution, the memorandum must be sent to every eligible member at or before the time the resolution is sent to them; for a resolution at a meeting, it must be available for inspection at the registered office for at least 15 days ending with the date of the meeting, and at the meeting itself (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 goes into liquidation, the liquidator can take legal action to collect any money you owe the company on an overdrawn director's loan account — and a director who can't repay may be at risk of bankruptcy. 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 charge on interest-free or cheap loans where a director owes the company more than £10,000 at any time in the tax year — 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. If the intention was to take profit rather than borrow it, declare a dividend instead: our free dividend tax calculator shows the personal tax on a dividend at current rates.

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.

Where CompanyMinder Fits

CompanyMinder has no director's-loan feature: it doesn't track a loan account or flag when a loan needs members' approval. If a loan does need approval, you can use its resolution generator to produce an ordinary or written members' resolution — writing the wording yourself — and keep it with the company's other documents. The section 197 memorandum that must be made available to members isn't generated, so prepare that separately. The tax treatment stays with your accountant.

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