Funding my start up
Discussion
I own 50% of a start up that should be coming to market soon ish. It's all been cooking for ages. It's a tech start up and the developer has been very kind in not taking payment for work done to date but we are going to have to pay up soon
I don't have much cash in my own name at the moment. I have some fairly liquid assets I could sell but my preference would be to use some cash I have in another limited company that I use to bill clients for my work for them. Start up is a completely different industry.
Can my limited company loan my start up company some cash? Is that fall foul of rules? Ideally would be for a fairly lengthy period. Maybe 2y or more.
I'm pretty sure that my business partner will be funding his side from personal cash.
I don't have much cash in my own name at the moment. I have some fairly liquid assets I could sell but my preference would be to use some cash I have in another limited company that I use to bill clients for my work for them. Start up is a completely different industry.
Can my limited company loan my start up company some cash? Is that fall foul of rules? Ideally would be for a fairly lengthy period. Maybe 2y or more.
I'm pretty sure that my business partner will be funding his side from personal cash.
Yes. This is perfectly acceptable.
Tax is payable by your existing company on the interest it charges the new company. However, that interest will be an overhead for the new company so there is tax relief there meaning that it will make no 'net' difference to you.
You can provide it as an interest free loan but this causes something called 'distribution' which is regulated differently to an interest paying loan. IIRC, it means that if either company fails, you are not protected from limited liability for the proportion of the loan outstanding.
Depending on the amounts involved, I believe there are some benefits in setting up a holding company but have no experience of this - but worth asking your accountant about.
Tax is payable by your existing company on the interest it charges the new company. However, that interest will be an overhead for the new company so there is tax relief there meaning that it will make no 'net' difference to you.
You can provide it as an interest free loan but this causes something called 'distribution' which is regulated differently to an interest paying loan. IIRC, it means that if either company fails, you are not protected from limited liability for the proportion of the loan outstanding.
Depending on the amounts involved, I believe there are some benefits in setting up a holding company but have no experience of this - but worth asking your accountant about.
Without specifics of your idea, what can you achieve with your own capital? I’d suggest
1. Minimum viable product to test with prospects
2. A website
3. Definition of your target market / perfect customer , and knowledge of how many there are and how the need is currently met by other approaches
4. A prospect showing evidence of intent to buy, or at a stretch some revenue
That’s what I did.
If your testing goes well based on above then you can likely raise some external SEIS
1. Minimum viable product to test with prospects
2. A website
3. Definition of your target market / perfect customer , and knowledge of how many there are and how the need is currently met by other approaches
4. A prospect showing evidence of intent to buy, or at a stretch some revenue
That’s what I did.
If your testing goes well based on above then you can likely raise some external SEIS
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