Resolution of general meeting to approve a loan to a director

Companies can make loans to their directors, provided a memorandum setting out the terms and purpose of the loan has been approved by the company’s shareholders.

Loan approval

To obtain the shareholders’ approval, either use the traditional method of calling and holding a general meeting to pass what will be an ordinary resolution or, alternatively, the written procedure that’s now available.

Companies don’t, however, need to obtain the consent of its shareholders where:

• the loan is for less than £10,000
• they provide a director with funds to meet expenditure incurred, or to be incurred, for the purposes of the company or to enable the director to perform their duties as an officer of the company. This amount is limited to £50,000. 

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.