The Shareholder Loan Agreement is a crucial document in South African corporate finance, typically used when a company requires funding and opts to obtain it from existing shareholders rather than external financial institutions. This financing method is common in private companies and offers greater flexibility in terms and conditions compared to traditional bank loans. The agreement must comply with South African legislation, particularly the Companies Act 71 of 2008, National Credit Act, and relevant tax laws. It sets out the complete arrangement between the lending shareholder and the company, including loan amount, interest rates, repayment terms, default provisions, and any security arrangements. This type of agreement is particularly valuable for companies seeking to avoid dilution of ownership while maintaining control over their debt obligations.
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1. Parties: Identifies the shareholder(s) providing the loan and the company receiving it
2. Background: Explains the context of the loan and relationship between parties
3. Definitions and Interpretation: Defines key terms and establishes interpretation principles
4. The Loan: Details the loan amount, purpose, and drawdown conditions
5. Interest: Specifies interest rate, calculation method, and payment terms
6. Repayment: Sets out repayment schedule, prepayment rights, and payment mechanics
7. Representations and Warranties: Company's confirmations about its status and capacity
8. Undertakings: Ongoing obligations of the company during the loan term
9. Events of Default: Circumstances that trigger default and lender's remedies
10. Notices: Communication procedures between parties
11. General Provisions: Standard legal provisions including governing law, assignment, and amendments
1. Security: Include when loan is secured by company assets or guarantees
2. Subordination: Required when loan needs to be subordinated to other company debt
3. Multiple Lenders: Include when multiple shareholders are providing loans
4. Tax Provisions: Detailed section needed when specific tax treatments are agreed
5. Conversion Rights: Include if loan may be converted to equity
6. Information Rights: Additional reporting requirements beyond standard undertakings
7. Currency Provisions: Required for cross-border loans or multiple currency provisions
1. Loan Details: Detailed breakdown of loan amount, interest rates, and payment dates
2. Drawdown Notice: Form of notice for requesting loan disbursements
3. Repayment Schedule: Detailed amortization or repayment schedule
4. Security Details: Description of any security or collateral provided
5. Conditions Precedent: List of documents and conditions required before loan effectiveness
6. Calculation of Interest: Detailed methodology for interest calculations
7. Required Approvals: List of corporate and regulatory approvals obtained or required
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