Directors Loan Agreement Template for Australia

A Directors Loan Agreement is a legally binding contract that governs financial lending between a company and one of its directors in Australia. This document ensures your company complies with strict corporate law requirements while providing clear terms for any monetary advance or loan arrangement with directors.

When do you need this document?

You need a Directors Loan Agreement whenever your company provides financial assistance to a director, whether for business expansion, personal investment, or emergency funding. This includes situations where you're formalising existing informal lending arrangements that may have developed over time. The agreement is essential when directors require working capital for subsidiary ventures, need funds for property purchases, or require bridging finance for business opportunities. You'll also need this document if ASIC or the Australian Taxation Office requests evidence of proper loan documentation during compliance reviews.

Key legal considerations

The agreement must include specific clauses to satisfy Division 7A requirements, including minimum interest rates set annually by the ATO to prevent deemed dividend treatment. You need clear repayment terms with maximum loan periods (typically 7 years for unsecured loans, 25 years for secured property loans) and annual minimum repayment amounts. Security provisions should specify any collateral offered by the director, while default clauses must outline consequences for missed payments or breach of terms. The document should include board resolution requirements, as loans to directors require proper board approval and disclosure to shareholders. Consider including personal guarantees from the director's spouse or related entities where significant amounts are involved.

Legal requirements in Australia

Under the Corporations Act 2001, your company must obtain shareholder approval for loans exceeding certain thresholds, particularly for public companies or where the director holds substantial shareholdings. The agreement must comply with related party transaction rules in Chapter 2E of the Corporations Act, ensuring arm's length terms and proper disclosure procedures. Division 7A of the Income Tax Assessment Act 1936 requires loans to meet minimum interest rates (currently set annually by the ATO) and maximum repayment periods to avoid being treated as unfranked dividends. You must maintain detailed records of all payments, interest calculations, and compliance with repayment schedules for ATO audit purposes. ASIC requires proper documentation of director-related transactions, and the agreement must be recorded in company registers and disclosed in annual financial statements where material.