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.
Information including how much will be borrowed, the applicable interest rate, and the repayment schedule are necessary to create a shareholder 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.
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.
All lending shareholders must sign the shareholder agreement. The chosen company director is also required to sign it on behalf of the company.
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.