A Shareholder Loan Agreement (also called a "Stockholder Loan Agreement") is used when a corporation is borrowing money from one of its shareholders (or "stockholders"); a shareholder (or "stockholder") is lending money to its corporation; or a corporation owes money to a shareholder (or "stockholder") (for salary, etc.) and the parties need a record of the payment to the shareholder (or "stockholder") for tax purposes.
Who is the Shareholder (or "stockholder")?

The Shareholder (or "stockholder") is the party that advances money to the Corporation on condition that the Corporation will repay the loan in the future. The Shareholder (or "stockholder") also owns shares in the Corporation. For the purpose of the loan the Shareholder (or "stockholder") is treated the same as any other debtor or lender.

Who is the Corporation?

The Corporation is the party that borrows money from the Shareholder (or "stockholder") on condition that the money will be repaid in the future. If the Corporation was to liquidate, then all loans (including the shareholder loan) must be paid before the shareholders (or "stockholders") can recover any equity from their shares.

What is the governing law for a Shareholder Loan Agreement?

The governing law is the law of the jurisdiction in which the loan will be entered into. It may or may not coincide with the jurisdiction in which the parties reside.

What is the Principal Amount?

The Principal is the original amount of the loan that is paid from the Shareholder (or "stockholder") to the Corporation on the date of the loan, before any interest accrues. Once the Corporation has begun to pay back the loan, the principal amount refers to the amount of money still owing to the Shareholder (or "stockholder") at any given moment in time.

What is Interest?

Interest is an amount charged to the Corporation (the borrower) for the use of the Shareholder's money. It is usually expressed as a percentage of the amount borrowed and is calculated at a specified interval over the course of the loan. The interest rate is the annual interest rate.

What does "compounded" mean?

Interest can be compounded monthly, every six months or yearly. Compounded refers to how frequently the interest is calculated and added to the principal amount of the loan. The more frequently the interest is calculated, the more interest the Corporation will end up paying to the Shareholder (or "stockholder").

What does Default mean?

Default means that the Corporation has failed to repay the loan according to the terms set out in the Shareholder Loan Agreement. Typically, a Default will result in the Corporation being assessed a penalty and the loan being immediately due.

What is a demand loan?

A demand loan does not need to be paid until the Shareholder (or "stockholder") demands it be repaid. There is no fixed end date for the repayment of the loan. Upon demand, the Corporation is given a reasonable period of time to repay the entire loan.

What is the difference between a Promissory Note and a Shareholder Loan Agreement?

Both contracts evidence a debt owed from a borrower to a lender, but a Promissory Note may be between any two parties. The Shareholder Loan Agreement is used when a Corporation borrows money from one of its shareholders (or "stockholders").

What is the Term?

The Term is the period of time over which the loan will be outstanding. At the end of the Term the Corporation will have repaid the loan and any interest that has accumulated.

Loan Agreement Details
I am a Shareholder. Should I use the Loan Agreement or the Shareholder Loan Agreement?

As a Shareholder (or "stockholder"), if you are lending money to the corporation, use the Shareholder Loan Agreement. If you are borrowing money from the corporation, use LawDepot.com's Loan Agreement or Promissory Note.

Does the Shareholder (or "stockholder") have to charge the Corporation interest?

No. The Shareholder (or "stockholder") can choose whether or not to charge interest. If the Shareholder (or "stockholder") decides to charge interest, they can pick how much interest to charge and how frequently to compound the interest. However, all jurisdictions have a maximum interest percentage that can be assessed. There are often very serious penalties for exceeding this percentage, so you need to check your local laws to ensure that you do not exceed the legal rate of interest.

What are the payment options available?

There are four options for the method of repayment:

1. The loan can be repaid by "specific periodic amounts", which means that the Shareholder (or "stockholder") and Corporation agree upon an amount of money which the Corporation will pay to the Shareholder (or "stockholder") at agreed upon intervals.

2. The "lump sum" payment at the end of the term means that the Corporation pays nothing to the Shareholder (or "stockholder") until the end of the loan term, at which time the Shareholder (or "stockholder") repays the entire loan in one payment.

3. The "interest only" option means that the Corporation makes regular payments to the Shareholder (or "stockholder") that are put toward paying off the interest on the principal amount only, with no portion of the payment going towards the principal amount itself. The principal is repaid at the end of the term.

4. The "interest and principal" option means that the Corporation makes regular payments to the Shareholder (or "stockholder") that are put toward paying off both the principal amount and the interest as it is compounded.

Should the Corporation be able to pay the outstanding principal without penalty?

Granting this option enables the Corporation to pay down the principal at anytime without having to pay an additional sum as a penalty.

As the Shareholder (or "stockholder"), should I demand that the Corporation provide security/collateral for the loan?

You do not need to require collateral, however, in the event the Corporation goes bankrupt, your debt will have priority over debts owed by the Corporation to other lenders if you have "secured" your loan through collateral. This may be preferable if the Corporation does not have enough assets to fully repay all of its debts.

Does the collateral need to be equivalent in value to the loan amount?

No, if collateral is given for the loan, it can be for any amount. However, if the collateral is significantly less valuable than the debt, there is a chance that the Shareholder's loan will only be partially secured. If the Corporation goes bankrupt and does not have enough assets to pay its debts, the Shareholder may not receive full repayment of the loan.

Signing Details
I do not know when the Shareholder Loan Agreement will be signed. Can I fill in the date later?

Yes, by selecting 'Unsure' as the date the agreement will be signed, a blank line will be inserted into the loan agreement so that you can add the correct date after printing the document.

Does my document need a witness, or a notary, or is it OK without a witness?

Most documents and contracts do NOT require a witness for them to be legally valid. However, some documents can have clearly regulated requirements pertaining to witnesses. Additionally, many banks and other institutions have their own policies about signing requirements, and may refuse to accept documents that are not notarized regardless of their legal sufficiency. If your document will be used by a bank or registry, check with them regarding any additional witnessing requirements.

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