Shareholders’ Current Accounts Explained

If you own a company in New Zealand, you’ve probably heard the term “shareholder’s current account” and wondered what on earth it actually means. Over coffee with my clients, this is one of the topics I explain most often — because it’s often confused with profit or shareholder salary. Let’s break it down in plain English.

1. Think of It Like a Loan Account

The shareholder’s current account is basically a loan account between you (the shareholder) and your company.

• If the company owes you money → your account is in credit.
• If you owe the company money → your account is overdrawn (like a loan from the company to you). You will be charged interest by the company.

2. How Drawings Fit In

“Drawings” is just the money you take out of the company for personal use. This reduces your shareholder’s current account balance.

• Example: If your company makes $50,000 profit and you withdraw $20,000, your current account reduces by $20,000.

But here’s the catch: drawings are not the same as salary or profit. They’re simply a record of you taking money out.

3. How It Differs from Profit

Profit is what’s left after expenses in the company. Just because your company has profit doesn’t mean you personally have taken it out yet.

• The company can choose to:
  • Keep profit in the business
  • Pay it out as shareholder salary
  • Distribute it later as dividends

4. How It Differs from Shareholder Salary

Shareholder salary is money allocated to you as income (usually for tax purposes). It reduces the company’s profit but is treated as taxable income for you. Drawings are just the cash you take — they don’t affect taxable profit directly.

5. Why It Matters

• Helps avoid nasty surprises at tax time.
• Ensures you’re not unintentionally borrowing from your own company.
• Keeps your records tidy so your accountant can prepare financials correctly.

Final Sip of Coffee Tip ☕:
Think of your shareholder’s current account like a “running tab” between you and your company. Profit is the business’s result. Shareholder salary is a tax decision. Drawings are just you taking cash. Keeping them separate makes life much easier.

☕ Over Coffee Example: A knitting shop treated the company account like a wallet. Her shareholder account was overdrawn.

Coffee Chat Tip: Set a regular transfer to pay yourself like a wage.