Loan from Director or Shareholder

You are viewing content for Singapore.

What is it?

A Loan from Director or Shareholder is an agreement for use when a director or shareholder lends money to their company.

There are occasions when the directors or shareholders of a company decide to lend money to the company, often where the company is relatively new and cannot borrow from lenders but still needs assistance relieving its debt load.

Why do you need it?

With more businesses struggling to obtain funding from lending institutions, they are looking for alternative ways to inject cash into their businesses. This is often achieved by way of a director's or shareholder's loan. Usually, money invested into a business by way of director's or shareholder's loan will be paid back when the company is in a position to do so.

By drawing up a Loan from Director or Shareholder, the director or shareholder becomes a creditor of the company and upon liquidation this debt will take priority over the ordinary shareholders of the company.

Key clauses to watch for:

When drafting a Loan from Director or Shareholder, it is important to focus on a number of key clauses, in particular:

  • Details of the company;
  • Details of the director or shareholder;
  • Details of the loan;
  • Details of the bank account into which the repayment(s) must be made;
  • Additional interest for late payment;
  • Covenants of the loan; and
  • Asset value at which the company would be classed as in default of the agreement.

Loan from Director or Shareholder Document