Readers question: If I have three separate Limited company businesses, can I pay myself a salary/management fee from each one or only the one?
Experts answer: The expert for this piece is Keith Tully from Real Business Rescue.
If you operate more than one limited company you can legitimately pay yourself a salary and/or take a management fee from each business, but it is important that they are proportionate to the work you carry out.
If you take an exceptionally high salary or one that is significantly out of step with market rates you risk breaching your fiduciary duties as a director, which could lead to allegations of wrongdoing if one or more of your companies become insolvent in the future.
Your salary level and the management fees you charge to your companies should reflect the type of work you do and the services you offer to customers/clients, and be justifiable if necessary.
Breach of fiduciary duties
As a limited company director, you have a statutory duty to promote the success of the companies you run, and also to be aware of their financial position at all times. If you take a high salary that the businesses cannot support, it could cause serious cash flow issues and lead to insolvency.
Potential problems may not crystallise when your businesses are solvent and trade is good, but if one or more is liquidated and misfeasance proven by the liquidator, the ‘veil of incorporation’ will be removed and you may be held personally liable for creditors’ losses.
Misfeasance is deliberately taking inappropriate or incorrect actions as a director – in this scenario, excessively high salaries/management fees, which would be seen to have contributed to the company’s downfall and worsened the position of creditors.
Potential for company insolvency
When a limited company enters insolvency and has to be liquidated, part of the liquidator’s role is to identify areas of wrongdoing or misfeasance. This is why it is important that your salary is justifiable, bearing in mind the potential for insolvency to quickly strike any company.
If your salary is in line with market rates it is unlikely to be questioned, but if it is significantly higher, or you are taking a full salary from the three companies individually and only carrying out a third of the work for each, the liquidator may decide to investigate further.
So although you can pay yourself a salary and charge management fees to each company you run, there are important caveats and considerations to take into account that could protect yourself, your company, and all its creditors.
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