Shareholder financing is a frequently used instrument with which shareholders provide
their company with financial resources. It primarily serves to secure liquidity, bridge
temporary bottlenecks or finance investments. Unlike a capital increase, it does not
constitute equity capital, but rather financing with a repayment claim.
What is shareholder financing?
Shareholder financing refers to the granting of a loan by a shareholder to their own
company. The shareholder provides the company with funds without increasing the share
capital or company capital.
In contrast to an equity injection (e.g. capital increase or shareholder contribution):
- the shareholding ratio remains unchanged
- there is no permanent capital commitment
- there is a contractual repayment obligation
Shareholder financing is therefore more flexible than a capital increase, but it entails
specific legal consequences.
Contractual requirements
Shareholder financing must be documented by a written loan agreement.
The loan agreement should in particular regulate the following points:
- Contracting parties (shareholders / company)
- Amount of financing
- Repayment date and repayment terms
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Any interest: if interest is agreed, the terms should be in line with market conditions
so that the financing is legally recognised as a loan
- Term of the loan
The contract must clearly state that the company is obliged to repay the loan. By
concluding the loan agreement, the shareholder becomes a creditor of the company and
acquires a claim to repayment of the funds provided.
Accounting classification
Shareholder financing is recognised in the company’s balance sheet under liabilities
and must be clearly distinguished from equity.
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Creditor status:
the shareholder is legally a creditor of the company and is entitled to repayment of
the financing.
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Balance sheet item:
depending on its term, the loan is recognised as a current or non-current liability.
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Disclosure in the notes:
the amount, term and interest arrangements should be disclosed in the notes to the
financial statements to ensure transparency for shareholders and authorities.
Shareholder loans are borrowed funds that are treated like other liabilities in the
balance sheet. Proper documentation ensures a clear distinction from equity and is
particularly relevant when assessing the company’s financial structure.
Special features of undercapitalised companies
Caution is required when an undercapitalised company receives additional funds from
shareholders. Undercapitalised means that equity is insufficient to cover the existing
risks and liabilities of the company.
If a financial imbalance exists in which a capital increase would be economically
appropriate, but shareholders grant a loan instead, special creditor-protection
mechanisms apply.
In such cases, Article 2467 of the Italian Civil Code provides that:
- repayment of shareholder financing is subordinated to other liabilities
- shareholders rank behind external creditors
- this applies in particular in insolvency or bankruptcy proceedings
This so-called subordination is intended to prevent shareholders from recovering their
financing before other creditors, thereby weakening the creditors’ position.
Conclusion
Shareholder financing is an effective and flexible instrument for corporate financing.
It allows shareholders to support their company in the short term without altering the
company’s capital structure.
At the same time, it requires clear contractual arrangements, correct accounting
treatment and particular caution in financially distressed companies. Only in this way
can legal risks and disadvantages in the event of a crisis be avoided.