Shareholder Loan Agreement (India)
SHAREHOLDER LOAN AGREEMENT
Indian Contract Act 1872 | Companies Act 2013
This Shareholder Loan Agreement ("Agreement") is entered into on [Agreement Date] between:
(1) [Lender Name] (PAN: [Lender PAN]), having their address at [Lender Address], holding [Lender Shareholding Percent] of the share capital of the Borrower ("Lender"); and
(2) [Borrower Name] (CIN: [Borrower CIN]), having its registered office at [Borrower Address] ("Borrower").
1. LOAN
1.1 Subject to the terms of this Agreement, the Lender agrees to lend and the Borrower agrees to borrow [Loan Amount] (the "Loan").
1.2 The Loan shall be drawn down on [Drawdown Date] by transfer to the Borrower's bank account as notified by the Borrower.
1.3 The Borrower shall use the Loan solely for its general business purposes and not for any purpose prohibited under applicable law, including the Companies Act 2013 or the Foreign Exchange Management Act 1999.
2. INTEREST
2.1 The Loan shall bear interest at [Interest Rate] per annum, calculated on the outstanding principal balance from the drawdown date until full repayment.
2.2 Interest shall be paid quarterly in arrears on the last day of each calendar quarter.
2.3 The Borrower shall deduct TDS on interest under Section 194A of the Income Tax Act 1961 (for resident lenders) or Section 195 (for non-resident lenders) at the applicable rate and remit the deducted amount to the Income Tax Department.
3. REPAYMENT
3.1 Repayment Schedule: [Repayment Schedule].
3.2 The outstanding principal and accrued interest shall be repaid in full by [Maturity Date].
3.3 The Borrower may prepay the Loan in whole or in part at any time without penalty, subject to giving 7 days' prior written notice to the Lender.
3.4 Subordination: The Lender's rights to repayment of this Loan are [Subordination].
4. SECURITY
4.1 Security for this Loan: [Security].
5. EVENTS OF DEFAULT
5.1 The Lender may declare the Loan immediately due and repayable if: the Borrower fails to pay any amount due under this Agreement within 30 days of the due date; the Borrower becomes insolvent or is wound up; or the Borrower ceases to carry on business.
6. GOVERNING LAW
6.1 This Agreement is governed by the laws of India. Any dispute shall be resolved by arbitration under the Arbitration and Conciliation Act 1996, or by the courts of competent jurisdiction as agreed by the parties.
6.2 This Agreement has been approved by the Board of Directors of the Borrower by resolution dated [Agreement Date].
Lender (Shareholder)
________________
Signature
Borrower (Company – Authorised Signatory)
________________
Signature
What Is a Shareholder Loan Agreement (India)?
A Shareholder Loan Agreement in India sets out the conditions on which money is lent, including the rate of interest, any security taken and what happens on default.
When Do You Need a Shareholder Loan Agreement (India)?
Use this agreement when a shareholder — whether an Indian resident or a foreign entity — wishes to provide a loan to the company rather than subscribing for additional shares. Common scenarios include: a founding shareholder injecting working capital into a start-up before a formal equity round supervised by SEBI-registered advisers; a parent company providing bridge financing to a wholly-owned subsidiary pending completion of an inter-corporate loan under Section 186 of the Companies Act 2013; family members lending money to a family-owned private limited company; and foreign investors providing ECB-compliant loans to Indian portfolio companies under the RBI's Master Direction on External Commercial Borrowings. The agreement should be executed and a Board resolution passed under the Companies Act 2013 before the loan funds are transferred to the company's bank account. Once funds are transferred without a written agreement, establishing the terms — particularly the interest rate, repayment schedule, subordination arrangements, and whether the transfer constitutes a loan or an equity infusion — becomes difficult if a dispute later arises before the National Company Law Tribunal (NCLT) or a civil court. For companies with multiple shareholders, a shareholder loan from one shareholder without corresponding loans from others may alter the economic balance between shareholders and should ideally be disclosed to and approved by all shareholders. The company's Articles of Association and any existing shareholders' agreement should be reviewed for provisions requiring shareholder consent for borrowings above specified amounts under Section 180 of the Companies Act 2013. For foreign shareholder loans, the ECB reporting obligation to the Reserve Bank of India (RBI) via Form ECB through the authorised dealer bank must be completed within 30 days of the first drawdown — failure is a FEMA 1999 violation attracting compounding penalties imposed by the RBI's Enforcement Department. Companies should confirm their authorised dealer bank (AD Category I bank) is notified before the first drawdown. TDS under Section 195 of the Income Tax Act 1961 applies to interest paid to non-resident shareholders, and Form 15CA and 15CB remittance reporting are required before each cross-border interest payment. Under Indian law, the Indian Contract Act 1872 Section 10 governs contract validity, the Companies Act 2013 regulates corporate borrowings, and FEMA 1999 governs cross-border lending.
What to Include in Your Shareholder Loan Agreement (India)
A thorough India shareholder loan agreement should include the following elements. Parties: the full legal name, registered address, and PAN of the lender-shareholder (individual or company), and the full legal name, CIN, registered address, and PAN of the borrower company registered with the Registrar of Companies (ROC) under the Companies Act 2013. Loan amount and currency: the principal amount in Indian rupees (₹) for domestic loans, or in the permitted foreign currency for ECB loans under the RBI Master Direction. For ECB loans, the all-in cost ceiling under RBI's current Master Direction on External Commercial Borrowings must be stated explicitly. Drawdown: whether the loan is drawn in a single tranche or multiple tranches, and the conditions precedent to each drawdown — for foreign shareholder ECB loans, submission of Form ECB to the authorised dealer (AD Category I) bank is a mandatory condition precedent before funds may be remitted. Interest rate: the annual interest rate or a statement that the loan is interest-free where that is the intention, the calculation basis (simple or compound interest), and the payment frequency (monthly, quarterly, or on repayment). For related-party domestic loans where the shareholder holds more than 20% equity under Section 92A of the Income Tax Act 1961, the rate must be at arm's length to avoid transfer pricing adjustments under Sections 92 to 92F by the Central Board of Direct Taxes (CBDT). Repayment: bullet repayment on a fixed date, an amortising schedule, or repayment on demand. For ECB loans, the minimum average maturity period prescribed by the Reserve Bank of India (RBI) in its current Master Direction must be observed. Security: whether the loan is unsecured or secured by a charge on specified assets — if secured, the charge must be registered with the ROC within 30 days of creation under Section 77 of the Companies Act 2013 by filing Form CHG-1, failing which the charge is void against the liquidator and creditors. Subordination: a written acknowledgement that the shareholder loan is subordinated to all existing and future secured senior bank debt, with the shareholder agreeing not to demand repayment while any senior debt remains outstanding — this is a key requirement of many Indian banks when approving credit facilities to start-up companies. Events of default and acceleration: insolvency proceedings under the Insolvency and Bankruptcy Code 2016, appointment of a liquidator or Resolution Professional by the National Company Law Tribunal (NCLT), change of control, or material breach of the loan agreement terms. TDS: the company's obligation to deduct TDS under Section 194A of the Income Tax Act 1961 at 10% (domestic loans) or Section 195 (non-resident shareholders) on interest payments, deposit the deducted tax with the CBDT within prescribed deadlines, and issue Form 16A to the lender. Board resolution: the Board must pass a resolution under Section 179 of the Companies Act 2013 approving the borrowing, recording the interest rate, repayment terms, and security, to be minuted and retained in the company's statutory books. FEMA and ECB compliance: for foreign shareholders, Form ECB filing within 30 days of the first drawdown and monthly ECB-2 returns filed through the AD bank throughout the loan tenure. Forms-legal.com provides this template as a starting point for India-compliant shareholder loan agreement documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Shareholder Loan Agreement (India) (India) [Legal document template]. Forms Legal. https://forms-legal.com/india/financial/loans/shareholder-loan-agreement-india
"Shareholder Loan Agreement (India) (India)." Forms Legal, 2026, https://forms-legal.com/india/financial/loans/shareholder-loan-agreement-india.
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title = {Shareholder Loan Agreement (India) (India)},
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howpublished = {\url{https://forms-legal.com/india/financial/loans/shareholder-loan-agreement-india}},
note = {Free legal document template. Based on Companies Act, 2013}
}Also available for these jurisdictions:
Frequently Asked Questions
Yes. Section 185 of the Companies Act 2013 restricts loans by a company to its directors and related parties. However, a shareholder loan — where the shareholder lends money to the company (not the company to the shareholder) — is a different transaction: it is a loan from a third party (the shareholder) to the company. Such loans are governed by the Indian Contract Act 1872, and the company must comply with Section 73 and Section 76 of the Companies Act if the loan is in the nature of a 'deposit' accepted from members. Shareholder loans must also be disclosed in the company's financial statements and board minutes must record the approval of the borrowing. For private limited companies, the borrowing limit under Section 180 may also need to be checked. Under India law, Companies Act, 2013, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
There is no statutory maximum interest rate for shareholder loans in India (unlike bank lending rates). The rate is freely negotiable between the parties. However, for tax purposes, if a shareholder provides a loan at a below-market interest rate to a company in which they hold more than 20% shares, or to a related party, the Income Tax Act 1961 transfer pricing provisions (Sections 92–92F) may deem the transaction to be at arm's length and impute a market interest rate. For loans from foreign shareholders, the Reserve Bank of India (RBI) prescribes a maximum all-in cost ceiling under the External Commercial Borrowings (ECB) framework. Interest payments to non-resident shareholders attract TDS under Section 195 of the Income Tax Act. Under India law, Companies Act, 2013, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
If the lender is a non-resident — a foreign company, NRI, or overseas citizen — the loan is treated as an External Commercial Borrowing (ECB) under the Reserve Bank of India's ECB framework (Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations). Key requirements include: the loan must be for permitted end uses (cannot be used for equity investment, real estate speculation, or working capital in most cases); the maximum interest rate is subject to an all-in cost ceiling prescribed by RBI; the loan must be reported to RBI via Form ECB within 30 days of drawdown; and an ECB 2 return must be filed monthly. FEMA 1999 compliance is mandatory for cross-border shareholder loans. Under India law, Companies Act, 2013, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
A Shareholder Loan Agreement (India) does not legally require a lawyer in India, and individuals and businesses may draft and execute the document independently. The Companies Act, 2013 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified India lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The Supreme Court of India has jurisdiction over disputes arising from this type of document, and Registrar of Companies (ROC) may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.
A Shareholder Loan Agreement (India) does not legally require a lawyer in India, though legal advice is recommended. Under Indian law, the Indian Contract Act 1872 governs agreements. The Companies Act 2013 and Registrar of Companies (ROC) regulate corporate documents. The Information Technology Act 2000 governs electronic contracts and data protection. The Consumer Protection Act 2019 provides consumer rights. The Income Tax Act 1961 requires tax compliance. Forms-legal.com provides this template as a starting point — always review with a qualified Indian advocate for significant transactions. Under India law, Companies Act, 2013, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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