Great points.
Just some data points from the UK, not disagreeing with the parent comment.
Lending to the company is useful as an alternative to posting a large amount of _initial_ share capital, which you might simply not have, or not want to declare at first. For example, if you have a main job, and you are starting a company for a side project (to give it clearer legal structure or other benefits of incorporation), and don't have savings to put in. Rather than wait until you've saved up, you might start the company with minimal share capital, then add project funding over time from your main job salary by way of directors loan rather than issuing more shares and all the complications that go with that.
In the UK it's simpler, especially for small, short term director loans:
- When lending to the company, the terms don't have to be those a third party would agree to. It's ok to be interest-free, or to charge interest. If charging it's personal income for the director and personally taxable as interest, and a taxable business expense to the company For a one-person, 100% owned company it will generally be favourable to not charge interest, as well as simpler to document. A drawn up contract is of course advisable, especially for loans with interest, to document what's going on especially for authorities, but it can be a simple one.
In one-person companies it's common to lend to the company as a side effect of other things, for example deferring an agreed salary payment, dividend, or sale of property into the company posted to the loan account instead of paid as cash.
- When borrowing from the company, below £10k and for a strictly limited timing relative to the company accounting year, a director can borrow interest-free without involving taxes (as long as it doesn't follow a pattern that would be deemed an advance on salary instead, then there would be tax/NI implications).
- Otherwise, if insufficient interest "hidden payment" can occur, which we call "benefit in kind", and it's dealt with legally by paying tax on an amount you or your accountant can calculate. Helpfully, an agreeable interest rate is formally specified by the tax authorities; if it's paid there's no benefit in kind to worry about anyway. There is no need to evaluate and document what a third party might agree to.
In practice, the smaller type is not uncommon, and can even occur by accident, for example if a director mistakenly pays for something personal on a company card, that's recorded as DLA until it's paid back or covered by something else.