Director loan accounts in South Africa: what we're tracking, and why it only ever goes one way
By SortedNexus Team · ShellRick Tech · 25 September 2026
When we registered ShellRick Tech (Pty) Ltd, each director put money into the company to get it going. That's a director's loan account, whether you call it that or not. Ours has one entry type on it so far: money in. No drawings, because there's been no profit to draw against yet, and when there is, we're planning to take dividends instead.
What a director's loan account actually is
A Pty Ltd, NPC, or Close Corporation is a separate legal person from the people who run it. The moment you put your own money into the company, whether that's covering the CIPC registration fee, buying a laptop before there's a business bank account, or a deliberate capital injection to get trading, that money legally belongs to the company now, not to you. What you have instead is a claim against the company for that amount. That claim, tracked over time as more money moves in either direction, is the director's loan account.
It runs in both directions. A contribution is money the director puts in, increasing the balance the company owes them. A drawing is money the director takes out, whether that's a formal decision to withdraw some of what they've contributed, or an informal "the business has cash, I'll take some" moment that a lot of small business owners fall into without thinking of it as a loan at all. Every drawing reduces the balance. If drawings ever exceed contributions, the balance goes negative, meaning the director now owes the company, not the other way round.
This is a company concept specifically. A sole proprietor has no legal separation from their business in the first place, so there's nothing to loan; money moving between a sole trader's personal and business accounts isn't a loan account, it's just the same person's money. If you're trading as a sole trader rather than a registered company, see our piece on what a sole proprietorship actually is in South Africa, and skip the rest of this one.
Our own loan account: money in, nothing out
When we registered ShellRick Tech on CIPC, the directors funded the company's early running costs out of our own pockets, and we logged those as director's contributions from day one. That's the only kind of entry on our loan account so far. We haven't drawn anything against it, because the company hasn't turned a profit yet to draw against, and we're not planning to change that once it does.
Once there's actual profit sitting in the business, our plan is to take it out as a formal dividend, not as an informal drawing against the loan account. That's a deliberate choice, not us being unaware that drawings are an option. Two reasons drove it.
Why we're choosing dividends over drawings
The first reason is tax efficiency. A dividend paid by a South African company is subject to Dividends Tax, a flat 20% withheld by the company and paid over to SARS on the shareholder's behalf, and once that's done the shareholder has no further personal tax to settle on it. It's a clean, final, single-rate transaction. A drawing against the loan account isn't a distribution of profit at all in the eyes of tax law; it's you being repaid money the company already owed you, which is only tax-free for as long as your contributions genuinely cover it. Once drawings run ahead of contributions, you're no longer being repaid, you're borrowing from the company, and that's a different and messier problem than a dividend ever is.
The second reason is that a growing negative loan account is exactly the kind of thing that draws SARS's attention at a small company. A director who repeatedly draws more than they've put in, without a formal loan agreement or interest being charged, looks a lot like undeclared remuneration or a disguised dividend, and SARS has anti-avoidance rules aimed at exactly that pattern. Sorting out whether a specific drawing should have been treated as salary, a deemed dividend, or a genuine loan repayment is the kind of thing that gets expensive to untangle after the fact. Taking a formal dividend instead sidesteps that question entirely, because there's no ambiguity about what it is.
None of this means drawings are wrong for every business. Plenty of small companies use the loan account as a genuine short-term cash flow tool, contributing when the business is flush and drawing when it's tight, and keep it properly documented and repaid. We'd just rather keep our own loan account simple: capital in, and nothing out until it's a formal dividend.
How we track it in SortedNexus
We built a Director's Account Statement into SortedNexus, on the Starter plan, once we needed to actually see our own balance rather than just remember it. It's built entirely from entries you already log in the Cash Flow Tracker, under two categories: Director's Contribution for money in, Director's Drawings for money out. Log an entry under either category, name the director it belongs to, and it shows up on that director's running balance automatically, oldest entry first, with the balance recalculated after every line.
Because it's per director rather than one combined number, a two-director company like ours can see each person's balance separately, which matters the moment contributions or drawings aren't split evenly. A negative balance is shown as a negative balance rather than being clamped at zero, because a director who's drawn more than they've put in is exactly the situation you want visible, not hidden.
These two categories are also deliberately excluded from the Annual Financial Summary's income statement. A contribution is a capital injection, not revenue, and a drawing is an equity distribution, not a business expense, so neither belongs mixed in with real trading income and costs. They only show up on the Director's Account Statement itself.
What this isn't
We want to be direct about the limits of both the feature and this article. A statutory director's loan account, the kind your accountant or auditor works from at year end, carries interest calculated at a specific rate, formal loan agreements, and board resolutions when balances change materially. Our tool doesn't do any of that. It's a running total built from the entries you log, nothing more, meant to give you visibility between now and your next conversation with your accountant, not to replace that conversation.
It's also worth repeating that this article describes our own decision for our own company, not a universal rule. Whether dividends or drawings make more sense for you depends on the company's cash position, each director's personal tax situation, and rules that change more often than most of this article's other facts. Confirm your own plan with an accountant before you rely on it.
See your own director's balance
If you're already logging cash flow in SortedNexus, the Director's Account Statement is built from entries you're likely already making. Available on Starter for registered companies.
Sources
Disclaimer: This article describes our own decisions for ShellRick Tech (Pty) Ltd and general information about how director's loan accounts work in South Africa. It is not tax, accounting, or legal advice. The Director's Account Statement in SortedNexus is a simplified running balance, not a statutory director's loan account statement. Confirm your own dividend, drawing, and tax position with a qualified accountant before acting on it.