Director’s Loan Agreement - Unsecured

This Director’s Loan Agreement – Unsecured records the terms of an unsecured loan made by a company to a director (or to a person connected with a director).

Use this agreement where shareholder approval is not required (loans below £10,000)

This agreement should only be used where the aggregate value of the loan is below £10,000, so that shareholder approval is not required.

Companies Act 2006 restrictions on loans to directors and connected persons

The general rule under the Companies Act 2006 is that a company may not make a loan to its director (or a director of its holding company), or give a guarantee or provide security in connection with a loan made by any other person to such a director, unless the transaction has been approved by a majority of the company’s shareholders.

Transactions that do not require shareholder approval

The following actions by a company do not require approval of the shareholders:

• making a loan or quasi-loan, or giving a guarantee or providing security in connection with a loan or quasi-loan to a director or connected person, if the aggregate of the value of the transaction plus any other relevant transactions or arrangements, does not exceed £10,000 (minor transactions for private and public companies).
• entering into a credit transaction, or giving a guarantee, or providing security in connection with a credit transaction, if the aggregate of the value of the transaction (that is, of the credit transaction, guarantee or security), plus any other relevant transactions or arrangements, does not exceed £15,000 (minor transactions for public companies).
• entering into a credit transaction, or giving a guarantee, or providing security in connection with a credit transaction, if the transaction is entered into by the company in the ordinary course of the company’s business, provided that the value of the transaction and the terms of it are no different than it is reasonable to expect the company would have offered to someone at arm’s length (business transactions for public companies).
• the making of a loan or quasi-loan, or the giving of a guarantee or security in connection with a loan or quasi-loan to a company within the same group (intra-group transactions for private or public companies).
• entering into a credit transaction as creditor, or giving a guarantee or providing security in connection with a credit transaction entered into by any person, in each case for the benefit of a company within the same group (intra-group transactions for public companies).
• providing funds to avoid incurring or to meet expenditure (up to a maximum aggregate value of £50,000) incurred or to be incurred by a director or connected person for the purposes of the company, or to enable him properly to perform his duties as an officer of the company.
• providing its director (or a director of its holding company) with funds to avoid incurring or to meet expenditure incurred or to be incurred by him in defending any criminal or civil proceedings in connection with any alleged negligence, default, breach of duty or breach of trust by him in relation to the company or an associated company. Section 205 of the Companies Act 2006 sets out the required terms of the loan.
• providing a director of the company or of its holding company with funds to meet expenditure incurred or to be incurred by him (or avoid incurring such expenditure) in defending himself in an investigation by a regulatory authority, or against action proposed to be taken by a regulatory authority, in connection with any alleged negligence, default, breach of duty or breach of trust by him in relation to the company or an associated company.

For all other loans, 50% or more of the shareholders must approve the transaction by using a written resolution or passing a resolution at a general meeting. For further details, please refer to Guidance: Loans & Directors. This also sets out who is a ‘connected person’.

Director’s Loan Agreement - Unsecured is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.