How to review a shareholder loan agreement under English law

Shareholders often fund a private company by lending to it rather than buying more shares. A shareholder loan agreement records the terms so that everyone, including later investors and lenders, knows what is owed and when. This checklist covers the main clauses under English law and how to review the agreement in Word with LexDraft.

Last checked: 18 October 2026. The law changes; check the current position before relying on this page.

This guide covers the law of England and Wales. Scotland and Northern Ireland have their own rules on several of the points below.

Clause checklist

• Parties and amount. Who lends, who borrows, the facility amount, whether it is drawn at once or in tranches, and what the money may be used for.
• Repayment. A fixed date, instalments or repayment on demand. A loan repayable on demand gives the lender control but can worry other lenders and auditors.
• Interest. Interest-free, a fixed rate or a margin over a reference rate, when interest is paid and whether it rolls up.
• Security. If the loan is secured by a charge over the company's assets, the charge should be registered at Companies House within 21 days beginning with the day after it is created (Companies Act 2006, sections 859A and 859E). An unregistered charge is void against a liquidator, administrator or creditor of the company, although the debt itself is still owed (section 859H).
• Subordination. Banks and other lenders often require shareholder loans to rank behind them, under a separate subordination or intercreditor agreement. Check that the loan terms fit that agreement.
• Conversion rights. If the loan can convert into shares, rights to convert securities into ordinary shares count as "equity securities" (section 560), so check whether statutory pre-emption rights apply or have been disapplied and whether the directors have authority to allot the shares. Check the articles and any shareholders' agreement too.
• Events of default. Non-payment, insolvency, change of control and breach of other terms, and what the lender can do: demand repayment, charge default interest or enforce security.
• Director conflicts. If the lender is also a director, the director must declare the interest in the proposed transaction to the other directors (section 177). Check the articles for voting and quorum rules on conflicted directors.
• Tax. Interest paid by a company to an individual lender may have to be paid after deduction of income tax, with returns to HMRC, and interest relief for the company depends on detailed rules. Keep the drafting neutral and take tax advice before agreeing the interest terms.
• Assignment and transfer. Whether the lender can transfer the loan, for example with a sale of its shares.
• Governing law and formalities. English law and courts, and whether the agreement is signed as a simple contract or executed as a deed.

Review the shareholder loan agreement in Word with LexDraft

1. Open the shareholder loan agreement in Word, open LexDraft from the Home tab and set the jurisdiction chip to UK: England & Wales (or UK: Scotland or UK: Northern Ireland if that is the governing law).
2. Run the quick checks. They are rule-based and run without AI, catching undefined or unused defined terms, broken cross-references, numbering gaps and inconsistent capitalisation.
3. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated shareholder loan playbook, so run a general review against English law and use the checklist on this page to direct your own read. This is a general AI review, not a playbook. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
4. Accept or reject each proposed redline. Accepted edits land as native Word tracked changes, ready for the other side.
5. Ask the Assistant to explain a clause in plain English or suggest wording for your side. Answers use UK spelling.
6. Look up any case you want to rely on in the Case law tab, then open the judgment on Find Case Law and read it yourself. UK judgments in LexDraft come from The National Archives' Find Case Law service, which only partially represents the activities of the courts and tribunals. Not every judgment or decision is included. Find Case Law does not include judgments from Scottish or Northern Irish courts or tribunals.

LexDraft does not give legal advice and does not summarise judgments. AI output can be wrong, so qualified counsel must check every redline before it goes out.

Common mistakes

• No written agreement at all, so the amount, interest and repayment terms are disputed later.
• A security document signed but never registered at Companies House within the 21-day period.
• "Loan" and "Facility" used interchangeably with different meanings. The defined-term check catches this.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. LexDraft is not affiliated with or endorsed by The National Archives or any court. Spotted something out of date? Email support@lexdraft.ai and we will fix it.