Loans to directors checklist

It is common for companies to help their directors out financially. This is permitted by the Companies Act 2006, as long as the shareholders consent. Our checklist takes you through the process.

Financial help

If a company decides to lend a director money over a certain amount, this triggers the requirement to obtain shareholder consent. The requirement also applies to similar financial help that exposes the company to financial liability, such as providing a guarantee or other security for a loan made by someone else to its director.

The requirement also applies to loans etc. to directors of the company’s holding company.

In the case of public companies, there is a longer list of types of financial help that trigger the consent requirement. This also applies to a private company that is the subsidiary or parent of a public company.

When considering a loan to a director, also give thought as to how it’s to be repaid, i.e. when, how and at what rate of interest. Consider the scenario where the director might resign from the company without having repaid all the money lent to them. In this instance, ensure that the terms provide that the loan is repayable on demand if the director is no longer an officer of the company.

Obtaining consent

This can be done at a shareholder meeting or by written resolution. See our model Written Resolution to Approve Loan to a Director. Whether the decision is made by written resolution or at a meeting, the shareholders must be given a summary of the basic terms of the transaction so they can make an informed decision. See our model Memorandum of Terms of Loan to Director for the information required.