Shareholder Loan Agreement Template

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A Shareholder Loan Agreement is a legal document between a corporation and a shareholder establishing the terms of a loan to or from the company. It is used to formalize internal financing arrangements and maintain accurate corporate records.
Shareholder Loan Agreement

 

This Shareholder Loan Agreement (hereinafter the "Agreement") is entered into on   (hereinafter the "Effective Date") by and between 

 , an individual registered at   (hereinafter the "Lender"), and 

 , a company having its registered place of business at  , duly represented by   (hereinafter the "Borrower"), collectively referred to as the "Parties" and individually the "Party". 

WHEREAS the Borrower desires to borrow a specific amount from the Lender for the business operation;

WHEREAS the Lender, who holds  % of the total share capital of the Borrower  , is willing to loan funds to the Borrower in accordance with the terms and conditions of this Agreement;

NOW, THEREFORE, for consideration of the terms, covenants, and conditions contained herein and other valuable considerations, the Parties have agreed as follows:

Loan

The Lender shall lend the amount of   to the Borrower (hereinafter the "Loan") for the purpose of business, and the Borrower shall repay this principal amount of the Loan to the Lender with accrued interest as defined in this Agreement.

Disbursement and expenses

The Loan shall be paid out by the Lender to the Borrower within   business days upon the Effective Date. The Lender shall disburse the Loan to the Borrower's bank account indicated in this Agreement. All transfer, stamp, documentary costs, assessments, and charges related to this Agreement shall be covered by the Lender. 

Interest (rate of interest)

The Loan shall bear interest at the rate of  % per annum on the outstanding principal amount of the Loan from the date of the disbursement of principal under the Loan until such principal amount is repaid. 

Interest shall be payable monthly from the date of the disbursement of principal during the preceding period. 

Term and repayment

The Loan shall be granted for the period starting from the Effective Date and shall become due and payable on   (the "Repayment Date"). 

The Loan, along with accrued interest, shall be (re)paid in full upon the Repayment Date. If any payment due hereunder must be made on a non-business day, such payment shall be made on the next business day.

Late payment

If the Borrower fails to (re)pay the Loan on the Repayment Date, the Borrower shall be liable to pay interest on the unpaid principal amount of the Loan at the rate of  % per month or at the maximum rate permitted by law, whichever is less.

Evidence of the Loan

The Lender shall maintain accounts evidencing the Loan and the Loan-related payments in accordance with its usual practice. The Lender's records with respect to the Loan, accrued interest, and other amounts due or to become due hereunder shall be prima facie evidence of the amounts outstanding. 

Warranties and representations of the Parties

The Borrower hereby represents and warrants that: 

  • It is a corporation duly organized, validly existing, and in good standing under applicable law;
  • The Borrower has full capacity and rights to enter into this Agreement, and all necessary authority has been obtained;
  • The Agreement constitutes a valid and binding obligation for the Borrower;
  • No action or proceeding before any agency or court of any jurisdiction may result in any material change in the Borrower's business or financial condition. 

The Lender hereby represents and warrants that: 

  • The Lender has full capacity and rights to enter into this Agreement, and all necessary authority has been obtained;
  • The Agreement constitutes a valid and binding obligation for the Lender;
  • No action or proceeding before any agency or court of any jurisdiction may result in any material change in the Agreement.
Events of default

In case (i) the Borrower defaults in payments, fails to perform other obligations under the Agreement, or violates the provisions of this Agreement, (ii) the Borrower has taken a resolution to dissolve, wind-up, or liquidation, (iii) any proceeding against the Borrower is commenced seeking an order for relief, or seeking bankruptcy, insolvency, reorganization, liquidation, or dissolution (the "Default"), the Lender shall provide the Borrower with an appropriate written notice (the "Default Notice") with a demand to cure the Default within   days. If the Borrower fails to meet the Lender's requirements stated in the Default Notice within a specified term, the Lender shall be entitled to take any action to protect their interests. Specifically, the Lender has the right to take protective and preventive measures, including but not limited to the right to terminate the Agreement unilaterally without prior notice and to declare all principal and interest amounts immediately due and payable. 

Force majeure

"Force majeure" means an earthquake, flood, storm, other acts of God, war, emergency, accident, industrial strike, acts of Government, or other impediment that the affected Party proves was beyond their control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of this Agreement or to have avoided or overcome it or its consequences. The Party affected by force majeure shall not be deemed to be in breach of this Agreement or otherwise be liable to the other Party because of any delay in performance, or the non-performance, of any of the obligations under this Agreement to the extent that the delay or non-performance is due to any force majeure of which they have notified the other Party as agreed hereinafter. The time for the performance of that obligation shall be extended accordingly. If any force majeure occurs with either Party that affects or is likely to affect the performance of any obligations under this Agreement, it shall notify the other Party within a reasonable time as to the nature and extent of the circumstances in question and their effect on the ability to perform.

Confidentiality

Neither Party shall disclose any terms or conditions of this Agreement or give a copy of this Agreement to any third party, except (a) if required by law or in any judicial proceeding, provided that the releasing Party has given the other Party reasonable notice of that requirement; (b) to a Party's attorneys, accountants, brokers, and other consultants or advisers, provided they agree to be bound by this clause.

Notices

All notices related to this Agreement will be deemed sufficiently given if sent by certified mail, return receipt requested, to the following addresses:

If to the Borrower:
 

If to the Lender:
 

Governing law and dispute resolution

This Agreement shall be governed by and construed in accordance with the laws of the State of  , except for its conflict of laws principles. Any action or proceeding arising out of or relating to this Agreement or its breach shall be brought exclusively in the courts located in the State of  .

Miscellaneous 

Severability. If and to the extent any provision of this Agreement is held illegal, invalid, or unenforceable in whole or in part under applicable law, such provision or such portion thereof will be ineffective as to the jurisdiction in which it is illegal, invalid, or unenforceable to the extent of its illegality, invalidity, or unenforceability. The illegality, invalidity, or unenforceability of such a provision in that jurisdiction will not affect the legality, validity, or enforceability of such a provision or any other provision of this Agreement in any other jurisdiction.

Entire agreement. This Agreement is the complete and exclusive understanding between the Parties with respect to the subject matter hereof, superseding any prior agreements and communications, both written and oral, regarding such subject matter.

Amendments. This Agreement may only be modified, or any rights under it waived, by a written document executed by both Parties.

Binding effect. This Agreement shall be binding for the Parties and their respective permitted successors and assigns.

IN WITNESS WHEREOF, the Parties have executed this Agreement in   authentic counterparts.

Details and signatures of the Parties

 

The Borrower

Signature: ____________

Full name of the authorized signatory:   

Title of the authorized signatory:  

Address:  

Email:  

Phone number:  

Banking details:  ,  

 

The Lender

Signature: ____________

Full name:  

Address:  

Email:  

Written by Karyna Pukaniuk - Reviewed by Kate Adkham

Template Description

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Paper titled "Shareholder Loan Agreement"; male sitting at the computer and statistics

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?

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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

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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?

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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

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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

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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?

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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.

Related Documents

Also read

All Shareholder Loan Legalities You Need To Know
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