Memorandum of terms of loan to director (197(4) of the Companies Act 2006)

If shareholder consent is required for a company to make a loan (or guarantee a loan) to a director, the relevant ordinary resolution must not be passed unless certain details about the transaction are made available to the members. This is to ensure that the members have enough information to make their decision about the loan.

The production of a memorandum is a requirement of section 197(4) of the Companies Act 2006, which states that the members must be provided with a memorandum setting out the following details about the transaction:

• the nature of the loan or guarantee;
• the amount of the loan or guarantee;
• the purpose of the loan or guarantee; and
• the extent of the company’s liability under the transaction in question.

If the resolution is to be made by written resolution, the memorandum must be sent to the eligible members with the resolution. If a shareholder meeting is called, the memorandum needs to be made available at the company’s registered office for not less than 15 days before the date of the meeting, as well as at the meeting itself.

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