When a shareholder takes money from the company, when does it constitute withdrawal of capital and when is it a normal loan?
The key is twofold: whether statutory procedures have been followed and whether there is a genuine transaction or borrowing basis. Where there is a loan agreement, agreed interest, an internal resolution that was duly passed and actually performed, the matter is generally treated as a loan. Where there is no contract, no resolution, the amount is comparable to the capital contribution, and it remains unrepaid for a long time, there is a high likelihood that it will be characterized as withdrawal of capital.
