How to record share capital and shareholder loans in a UAE company

Share capital is the amount stated in the company’s memorandum or articles, divided into shares owned by the shareholders. The ledger should show exactly that figure in a share capital account, regardless of when or how it was paid. If the memorandum says AED 300,000, the share capital account says AED 300,000.

If the capital has been paid in, the matching debit is cash. If it has not, the matching debit is an amount receivable from shareholders, shown or disclosed according to your auditor’s policy. Never put capital through revenue, and never let a bank deposit labelled “capital” sit in a suspense account.

A Dubai mainland LLC has two shareholders with 60% and 40%, and share capital of AED 300,000 per its memorandum. On incorporation, the shareholders pay AED 150,000; the rest is paid six months later.

• On incorporation: debit bank AED 150,000, debit capital receivable from shareholders AED 150,000, credit share capital AED 300,000.
• Six months later, Shareholder A pays AED 90,000 and Shareholder B AED 60,000: debit bank AED 150,000, credit capital receivable AED 150,000.
• Each shareholder’s capital receivable is tracked separately so you know who still owes what.

When a shareholder transfers AED 250,000 to fund a fit-out, the first question is whether it is capital or a loan. If it is a loan, record a liability to that shareholder and write a short loan agreement: amount, repayment terms, interest if any, and whether it ranks behind bank debt. Banks often ask for shareholder loans to be subordinated before lending.

Keep one loan account per shareholder. Money the shareholder pays personally on the company’s behalf, such as a supplier invoice paid from a personal card, also goes to that account, as does any repayment.

Shareholders and their companies are related parties. UAE corporate tax applies the arm’s length principle to related-party transactions, and a qualifying free zone person must comply with transfer pricing rules, as DMCC’s guidance notes. An interest-free loan from an owner to a company is common in the UAE, but the treatment of interest, or its absence, between related parties is a question for your tax agent, especially for larger amounts or free zone companies.

Whatever the tax answer, the ledger should hold the agreement, every movement and the balance at each year end, so the tax agent can do the work.

Owners sometimes convert a large shareholder loan into share capital to strengthen the balance sheet. Legally, this means amending the memorandum through the licensing authority. In the books, the entry is a debit to the shareholder loan account and a credit to share capital, dated when the amendment takes effect, not when the board decided to do it.

Worked example: Shareholder A has lent AED 400,000. The licensing authority approves a capital increase from AED 300,000 to AED 700,000 on 15 March, issued to A. On 15 March, debit A’s loan AED 400,000 and credit share capital AED 400,000. Ownership percentages change too, which affects future dividends.

These are the issues auditors most often raise about owner funding.

• Share capital in the books that does not match the current memorandum.
• One combined “owners” account for several shareholders.
• Personal expenses paid by the company left unrecorded against the loan account.
• Loan repayments recorded as expenses.
• Capital increases booked before the authority approved them.

HelloBooks sets up separate capital and loan accounts per shareholder, and the AI agent recognises transfers from shareholders on uploaded bank statements, asking whether each is capital or a loan before it posts. Ask “what does the company owe each shareholder today?” and it answers with the movements behind each balance. Attach the memorandum and loan agreements to the accounts for the auditor.

The capital-versus-loan decision belongs to the owners and their advisers; the AI only records what you approve.