Shareholders agreement with a shareholder loan

Shareholders lend money to their companies all the time, usually without writing down whether it is a loan at all, let alone its interest, repayment and priority, and the question surfaces when the company is sold, fails, or another shareholder asks why the lender is being repaid before anyone sees a dividend. The agreement, with a loan agreement alongside it, has to say what the money is, when and how it comes back, where it ranks against the bank and the other shareholders, what protections the lender has while it is outstanding, and what happens to it when the lender leaves or the company does. I draft the agreement, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days.

Who this is for

Shareholders in England and Wales who have lent or will lend money to their company, and the other shareholders who want the loan's terms and priority agreed, from a founder's start-up loan to an investor's funding by loan rather than shares.

What matters in a shareholders' agreement with a shareholder loan

Loan or equity and why the difference matters

Money a shareholder puts in as a loan is a debt the company owes, repayable on its terms before the shareholders share profits and ranking as a creditor's claim on insolvency; money put in as shares is capital, returned only on a sale or a winding up after creditors, sharing in the upside and the risk. The agreement should record which each contribution is, because an undocumented advance will be argued to be whichever suits the arguing shareholder, and the accountants should advise on the tax treatment of interest and of any later conversion or write-off.

Interest, repayment and what the cash flow can bear

The loan agreement should state the principal, the interest rate (or none), when interest is paid or rolled up, the repayment schedule or the events on which repayment falls due (a sale, a refinancing, a stated date, demand on notice), and any prepayment right, with the schedule set against the company's cash flow so that the loan is repaid from profits rather than from the next loan; a loan repayable on demand gives the lender a weapon the other shareholders should understand, and a loan with no repayment date gives the company a liability it will never clear.

Priority, security and the bank's position

A bank lending to the company will require shareholder loans to be subordinated (not repaid while the bank is owed, or only within limits) and may take security over the company's assets registered under section 859A of the Companies Act 2006, and the agreement should record the subordination the lender has accepted and whether the shareholder loan is itself secured (a charge, also registrable, which puts the lender ahead of unsecured creditors on insolvency) or unsecured; a shareholder loan secured without the other shareholders' knowledge is the surprise the agreement should prevent by making security a reserved matter.

The lending shareholder's protections

While the loan is outstanding the lender may want protections beyond their shareholding: a veto over further borrowing, security, dividends above a stated level and transactions with other shareholders' connected persons, information rights, and the right to accelerate the loan on stated defaults; the agreement should give the lender what the loan justifies and no more, because a lender-shareholder with control over dividends is a shareholder who can starve the others, and the loan's terms should not be used to achieve what the shareholding does not.

Conversion into shares and the price

The agreement can give the lender, the company or both the right to convert the loan into shares on stated events (a funding round, a sale, a stated date, default) at a stated price or a discount to the round's price, with the mechanics (the authority to allot under section 551 of the Companies Act 2006, pre-emption under section 561 disapplied for the conversion, the class of shares) set out, and the other shareholders' dilution accepted in advance; conversion is where a loan becomes an investment, and the price should be agreed now rather than when the company's value is contested.

The loan when the lender leaves, dies or the company fails

The agreement should say what happens to the loan when the lender sells their shares (repaid on completion, transferred to the buyer, or left outstanding on its terms), when they die (an asset of their estate, repayable as the loan provides), and when the company fails (the lender proves as a creditor behind any secured and preferential creditors and ahead of the shareholders, subject to subordination to the bank); the other shareholders should know that a lender-shareholder is paid before them on insolvency, and the note on the articles addresses the share rights that sit alongside the loan under section 33 of the Companies Act 2006.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

I put money into the company years ago and nothing was written down. Is it a loan?

It is whatever the evidence shows, and the evidence is usually the accounts and the shareholders' recollection. The agreement records what the shareholders now agree it is, which is the only way to settle it.

Can the lending shareholder demand repayment whenever they like?

Only if the loan is repayable on demand, which the agreement should avoid unless the other shareholders accept it. A schedule or stated events are the usual terms, subordinated to the bank.

Does a shareholder loan get repaid before dividends?

As a debt it is repaid first, unless subordinated to the bank or deferred by agreement. The agreement sets the order so that the other shareholders know when dividends can start.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement for a company where one shareholder funds it and another runs it

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.