Shareholder Loan Agreement

£50.00 exc VAT

This Shareholder Loan Agreement is for a loan by a shareholder to a company. 

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Shareholder Loan Agreement

Loan Agreement between for a loan to a company from a shareholder 

Background

How is a company funded by its shareholders?

Generally, a company can be funded by its shareholders in one of two ways:

  • equity: by the shareholders investing money in exchange for the issue of shares in the company
  • debt: by the shareholders lending money to the company

If a shareholder receives equity in the company, the amount invested becomes part of the capital of the company and is not usually repayable in normal circumstances. 

On a winding-up of the company, the shareholder capital is only repaid once all other creditors of the company have received payment of the amounts owed to them by the company.

If a shareholder lends money to the company, the loan will be repayable by the company in accordance with the terms agreed between the shareholder and the company. 

These terms may include the payment of interest on the amount borrowed.  On a winding-up of the company, the loan will rank equally for payment with the company’s other ordinary creditors and in priority to the company’s shareholders.

What terms are different for a shareholder loan?

A shareholder who makes a loan to a company has a joint interest, as both a lender to, and as a shareholder in, the company.

The loan terms are likely to be less onerous than a third party or bank loan.  In particular:

  • interest: a shareholder loan may be interest-free or with a lower interest rate than a third party loan.  Interest may only be payable if the company is able to pay the interest
  • repayment: a shareholder loan may only be repayable when the company is able to make repayments
  • events of default: a shareholder loan may have less onerous events of default than a third party loan 

About this loan agreement

This loan agreement is for a loan by a shareholder to a company.

Document features: Shareholder Loan Agreement

Features include:

  • optional clauses depending on whether the loan is interest-free or carries interest
  • flexible repayment date for the loan
  • fewer events of default than a third party loan
  • fewer undertakings from the borrower company than a third party loan

Explanatory guidance

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Shareholder Loan Agreement

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