If some person has converted his business (which has been a proprietorship so far) to a pvt ltd company, and he has parked all of his funds in the company, can he withdraw some money from the company to meet his personal expenses (as director's loan?)
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Drawing by shareholders
Replies (4)
Quick Summary
No....
If he is director then He can Take Salary as Director Salary...
If he is director then He can Take Salary as Director Salary...
Agreed with Raja Sir
You can't bear personal expenses at company cost but claim salary or dividend or in any other form .
You can't bear personal expenses at company cost but claim salary or dividend or in any other form .
Percentage of share holding , personal expenses not to be charged to revenue account. In case there are such issues it's treated as perks.
After conversion, no "drawings" from a company:
• Once a proprietorship is converted (taken over) into a private limited company, the business belongs to the company, a separate legal entity. The former proprietor (now a shareholder or director) can't take "drawings".
• Money from the company to the shareholder can only be: salary or remuneration (as a director, with TDS), dividend (from profits, with TDS), a loan (restricted by Sec 185 for directors; and deemed dividend under 2(22)(e) if a substantial shareholder of a closely held company), or a reimbursement of company expenses.
• Withdrawals treated as "drawings" will be treated as a loan or advance to the director (Sec 185 violation) or deemed dividend (taxable in the shareholder's hands).
• Conversion under Sec 47(xiv) requires the proprietor to hold at least 50% of shares for 5 years, among other conditions.
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