Loan from Director or Shareholder

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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.

Usually, money lent to 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.

Why do you need it?

It is crucial to distinguish between money paid into a company as capital (e.g. to subscribe for shares), and money lent to a company as debt (i.e. a loan). A Loan from Director or Shareholder is a record of debt.

By drawing up a Loan from Director or Shareholder, the director or shareholder becomes a creditor of the company. Upon liquidation this debt will be repaid before the shareholders of the company get back the capital they invested into 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 loan;
  • How the loan will be repaid; and
  • Conditions to be satisfied before the loan can be drawn.

Loan from Director or Shareholder Document