A shareholder loan agreement is a legal document containing all the terms and conditions of a loan provided by a shareholder to a company in which they hold equity or a person. A shareholder loan agreement template must outline the details of the loan, including the total amount, interest rate, repayment terms, collateral, and more. Answer the template-related questions in our interview to fill out the agreement in minutes and get your sample in PDF.
A shareholder loan is a financing option where a shareholder lends funds to a company in which they own equity. Small businesses and startups often opt for this type of financing to expand their operations. When opting for this type of financing, using a shareholder loan agreement template is crucial.
A shareholder loan agreement helps avoid common legal issues associated with this form of financing. Dive into this description to expand your knowledge about shareholder loan agreements.
What Is a Shareholder Loan Agreement?
A shareholder loan agreement is a legal document containing all the terms and conditions of a loan provided by a shareholder to a company in which they hold equity. A shareholder loan agreement template must outline the details of the loan, including the total amount, interest rate, repayment terms, collateral, and more.
A free shareholder loan agreement legally binds the shareholder and the company and protects the interests of both parties. A sample loan repayment agreement clearly states the obligations and responsibilities of all the involved parties. It prevents misunderstandings and also enables both parties to fulfill compliance requirements.
Parties of the Shareholder Loan Agreement
The parties involved in a shareholder loan agreement are as follows:
Shareholder: This is the individual or entity offering the loan to the borrower. The shareholder can be an individual, a group of owners, or an external investor.
Company: The company is the borrower who receives the funds from the shareholder. The company can be a startup, a small business, or a large corporation. The company involved is usually a company in which the shareholder holds equity.
Key Terms
Parties: The name and details of the shareholder and the company.
Loan amount: The total borrowed amount.
Interest rate: The interest rate charged on the loan.
Repayment schedule: The schedule of the loan’s repayment, including the frequency and the amount of payments.
Security or collateral: Any security or collateral provided by the company to secure the loan, such as equipment or property.
Default and remedies: The consequences of defaulting, including penalties, late fees, and more.
Common Sections in Shareholder Loan Agreements
The specific sections of a loan agreement examples usually vary according to requirements of the parties. But some common provisions are as follows:
Definitions: This section in a sample loan agreement form provides details about the terms used in the agreement.
Interest rate and fees: This provides details about the interest rate charged by the shareholder and other fees, such as late penalties.
Governing law and jurisdiction: This section in a promissory note loan agreement template provides details about the law governing the agreement and the jurisdiction where disputes will be resolved.
Signature and dates: This section in the employee loan agreement template includes the signature of the parties involved and the date of signature.
What Should a Shareholder Loan Contract Contain?
A finance agreement template should include the following:
Governing State: The shareholder loan agreement must specify the state laws governing the agreement. This guarantees that the agreement remains enforceable in the concerned jurisdiction and that the parties involved are aware of the legal requirements.
Corporate Details: The free shareholder loan agreement should contain the full legal name of the company borrowing the funds. Additionally, it should contain other relevant corporate details, such as the company’s registered address and its tax identification number.
Principal Amount: The shareholder loan agreement template should specify the amount being borrowed by the company.
Payment Schedule: The shareholder loan agreement template should include the entire repayment schedule. It must specify the frequency of payments and the due date for making each payment.
Shareholder Details: The shareholder loan agreement template must contain the full name of the shareholder giving the loan. Other relevant details of the shareholder, such as their address and tax identification number, must also be present.
Security: The free shareholder loan agreement must specify the security or collateral provided by the borrower. This protects the shareholder in case the company fails to pay back the loan according to the predetermined schedule.
Late Payment and Default: The shareholder loan agreement template must specify what will happen if the borrower fails to make a timely payment. It should specify late fees, penalties, or other remedies for the shareholder if the borrower defaults.
Benefits of a Shareholder Loan Agreement
There are many benefits to loan agreement templates for free:
It acts as a legal framework to avoid conflicts between the parties involved.
The loan agreement template clarifies the expectations of both parties.
The shareholder loan agreement template will ensure that the borrower and the lender are aware of the consequences in case of repayment default.
How to Write a Shareholder Loan Agreement
You should add the following in your terms and conditions of a loan agreement example:
Clearly outline the terms of the loan, including the loan amount, repayment schedule, interest rate, and other details.
Remember to add all the necessary details, such as the names and contact information of the parties, the governing law, warranties, and more.
Specify the penalties that the borrower will face in case of repayment default.
Both parties should sign and date the shareholder loan agreement template.
Use clear and concise language in the shareholder loan agreement template.
Both parties should have a copy of the agreement for future reference.
Why Do I Need a Shareholder Loan Agreement?
Having a shareholder loan agreement template will ensure that you are easily able to track the record of the loan and the obligations of all the involved parties. Furthermore, a free shareholder loan agreement contains terms and conditions that will help you avoid disputes in the future.
Common Use Cases
Some common uses of a shareholder loan agreement are as follows:
Protection of Rights: A shareholder loan agreement can protect the rights of the company as well as the shareholder. For instance, the agreement will mention what will happen if the company is unable to repay the loan or if the shareholder wishes to sell their company shares.
Clarification of Terms: A free shareholder loan agreement can be used to clarify the loan terms, including the borrowed amount, the interest rate, the repayment schedule, and more. It can help avoid disputes or misunderstandings between the involved parties.
Tax Purposes: A shareholder loan agreement template is also useful for clarifying tax implications. For example, the interest payable might be tax deductible for the company, or the loan might need to be included within the income of the shareholder for tax purposes.
When Not To Use the Shareholder Loan Agreement
You should avoid entering into a shareholder loan agreement in the following cases:
If you have a better financing option;
If it would negatively impact the investment of the shareholder;
If it would negatively impact the relationship between the shareholder and the company.
What information will I need to create a shareholder loan agreement?
Information including how much will be borrowed, the applicable interest rate, and the repayment schedule are necessary to create a shareholder loan agreement.
What is the difference between a promissory note and a loan agreement?
A promissory note is an informal arrangement in which a borrower promises to repay the loan to the lender. A loan agreement is a more formal document. A shareholder loan agreement template contains specific details of the loan, including the amount to be repaid, interest rates, penalties for not repaying the loan, and other contractual terms agreed upon by the borrower and the lender.
What are the disadvantages of providing a shareholder loan?
A shareholder loan impacts the financial statements and overall financial health of a business. It can increase the debt of the borrowing company. Moreover, it can cause conflicts between the lending shareholders and other shareholders.
What happens if a shareholder breaches the shareholder’s agreement?
A shareholder can be sued for breaching the shareholder loan agreement. A business litigation lawyer can handle issues resulting from the breach of a shareholder loan agreement template.
Who should sign the shareholder’s agreement?
All lending shareholders must sign the shareholder agreement. The chosen company director is also required to sign it on behalf of the company.
What happens if there are new shareholders?
A shareholder loan agreement template is usually made in such a way that ownership transfer does not have an effect. But if the agreement does not allow the transfer of the loan, the new shareholders will have to enter into a separate agreement.
