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Loan Agreement – Loan from a Director or Shareholder


This Loan Agreement – Loan from a Director/Shareholder sets out the terms of a loan between a director or shareholder as Lender and the company as Borrower.

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This Loan Agreement template offers flexibility in that it can either be secured or unsecured. It is for the lender to decide whether security is required, the most common form of security are fixed and floating charges over all the assets of the borrower and are generally contained in a Debenture which is a document creating security.

Please note - A Loan Agreement only defines the terms and conditions of a loan; in order to create security for the sum borrowed a separate agreement is also required. A Debenture is a document creating security; it secures a loan using the borrower's assets.

This comprehensive Loan Agreement contains a number of clauses covering conditions precedent, representations and warranties, undertakings and events of default; if these clauses are not required they can be deleted.

This Loan Agreement – Loan from a Director/Shareholder has been drafted specifically for use where the Lender is a director or shareholder of the Borrower and the Borrower is a private limited company incorporated in England and Wales. Loans between companies and their directors or shareholders need careful consideration as they raise a number of issues. The Lender (director/shareholder) needs to ensure that the loan agreement (and any security documents) does not conflict with the constitutional documents of the Borrower (the company) and that the necessary board resolutions have been passed to authorise the transaction.

If the loan is a secured loan it needs to be determined if a charge over assets of the Borrower in favour of a director amounts to a substantial property transaction under section 190 of the Companies Act 2006.

Under the Companies Act 2006 a transaction requires approval of the shareholders where a director of a company (or a director of its holding company) or a person connected to a director acquires, or is to acquire, from the company a substantial non-cash asset; or where a company acquires, or is to acquire, a substantial non-cash asset from one of its directors (or a director of its holding company) or a person connected to one of its directors. A substantial non-cash asset is a non-cash asset is any property or any interest in property (other than cash), the value of which either exceeds 10% of the value of company’s assets and is more than £5,000; or exceeds £100,000.

If a charge over assets of the Borrower in favour of a director amounts to a substantial property transaction it requires approval from the shareholders of the company. Approval can be obtained by the shareholders passing an ordinary resolution (unless the company's articles require a higher approval level) before the transaction is entered into, or after the transaction has been agreed provided the transaction is conditional on members' approval being granted.

Please note - Even if the value of the security over assets of the Borrower in favour of a director does not amount to a substantial property transaction in accordance with section 190 of the Companies Act 2006, it is best to obtain the approval of the shareholders for the creation and grant of the security.

As every loan is different and there is no standard loan agreement template that fits all loans, this Loan Agreement has been drafted taking into account the flexible nature of the transaction. It can be edited to suit the particular circumstances and needs of the parties.

This Loan Agreement – Loan from a Director/Shareholder contains the following clauses:

  1. Definitions and Interpretation
  2. Conditions Precedent
  3. Loan
  4. Purpose
  5. Drawings
  6. Interest
  7. Repayment
  8. Prepayment
  9. Representations and Warranties
  10. Undertakings
  11. Events of Default
  12. Costs
  13. Payments
  14. Set-off
  15. Notices
  16. Confidential Information
  17. Entire Agreement
  18. Severance
  19. Waiver
  20. Rights of Third Parties
  21. Variation
  22. Assignment
  23. Governing Law and Jurisdiction



This Loan Agreement – Loan from a Director/Shareholder is in Microsoft Word format, written in plain English, easy to use and edit.

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