Shareholder Loan Agreement
A Shareholder Loan Agreement is a formal contract documenting money lent by a shareholder to a company specifying terms like interest rates, repayment schedules, and security. It's important because it clarifies the financial relationship, distinguishes the loan from equity, and provides legal enforceability, protecting both the company and the shareholder's investment.
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Shareholder Loan Agreement - Formally Document a Loan to Your Company
A Shareholder Loan Agreement is a formal contract used when a shareholder lends money to their company. It is a crucial document that clarifies the financial relationship, distinguishing the loan from an investment. This protects both the company and the shareholder by setting clear terms for the loan, which helps prevent future disputes and provides legal enforceability.
The Loan and Repayment
This section of the agreement specifies the exact amount of money being loaned to the company. It defines the loan's term and when it must be repaid. The document also clarifies that the company can repay the loan early without any penalty, which provides flexibility.
Interest and Conversion
If applicable, the agreement can detail how interest will accrue on the loan, such as a percentage above a bank's reference rate. It can also include a conversion to equity clause, which gives the shareholder the option to convert the loan into company shares, with specific terms for valuation and the number of shares to be issued.
Warranties and Covenants
The company provides warranties, promising it has the authority to enter into the agreement and that the loan will be used for a legitimate business purpose. The company also makes covenants, or promises, to maintain accurate records and not to enter into any transactions that would jeopardize the loan repayment.
Subordination and Miscellaneous
The agreement can specify that the loan is unsecured and subordinated to any debt owed to commercial lenders, protecting the company's ability to borrow from other sources. It also includes general clauses for dispute resolution, confidentiality, and how the agreement can be amended.
Governing Law & Jurisdiction
This is a crucial section for any international agreement. It specifies which country's laws will govern the contract and which courts have exclusive jurisdiction over any disputes. This provides a clear legal framework and a predictable path for conflict resolution.
Creating a Shareholder Loan Agreement with Bind is the easiest way to document a loan to your company. Our tool guides you to create a comprehensive and legally sound document that protects both your investment and the company. Once the agreement is ready, you can sign it electronically, making the entire process fast and secure.
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