WHAT’S YOURS IS YOURS, AND WHAT’S MINE IS MINE
You might think from the title that this is a blog about family law. Certainly this is true in some divorce proceedings, but it can apply just as much in company law.
Running your own business can very similar to being married. You might see your staff in the same way as you see members of your family. You might pour your heart and soul into your enterprise and your relationship in equal measures and you might be equally heartbroken at the failure of a company as you are at the failure of a relationship.
What’s more, dismantling a business and a marriage can face similar difficulties, not least of all because company directors can have just as much trouble telling the difference between what is theirs and what belongs to the company, as spouses can have trouble differentiating between their assets and those of their ex.
There are, however, important differences, or at least there should be. Whilst it is entirely normal (and certainly not wrong) for your finances to become intermingled with those of your other half, the same cannot be said of your relationship with your company. You can borrow from the company (a director’s loan) and you can lend to the company (an investment), but the line between what belongs to the company and what belongs to you should never be blurred. If, for example, the company buys a computer for you to use, it is not your computer. If the company leases a car that you drive, it is not your car. Most importantly, if the company has money in the bank, it is not your money. If you take any of these items without good reason (such as evidence that you’ve repaid the company as appropriate) be prepared for action to be taken against you by, for example, HMRC, or a new owners or a liquidator.
It probably won’t surprise you to learn that the biggest issue comes with money, in divorce and in company law. People who own their own businesses often treat the company’s bank account like their own piggy bank, in much the same way as spouses who don’t work, sometimes view their other half’s earnings. The difference is that in family law (assuming the parties are married) the non employed spouse has a legal right to claim a share of their other half’s wealth. In company law, however, simply owning the company does not give you the right to help yourself to the bank account. Put another way, owning shares in M&S does not give you the right to walk into a store and walk out with a basket of food without paying for it!
If you are the sole director/shareholder, then these points will only be an issue if something changes, such as if you are selling the company or it’s in liquidation. If you are selling, then it will come out at the due diligence stage, at which point you can do a deal with the purchaser. If it’s in liquidation, it is likely you will have to repay anything you’ve taken that you shouldn’t, and if your dipping into the company funds is what has tipped the company over the edge, you could possibly be looking at a disqualification claim or trading insolvent in which case you could have a personal liability. If you own and run the company with others, you could possibly be accused by them of having stolen from the company. I have seen this give rise to police investigations and, if there were evidence to support the allegation, you could genuinely be looking at a prosecution.
If you are in any doubt about what you can take (or what others within the company can take) then take advice about what is going on before you decide whether any action or change in business practice (or marital practice!) you want to employ.
Kleyman & Co Solicitors. The full service law firm. We are always willing to share.