Can a shareholder loan money to as corporation?
James Williams
Published Apr 09, 2026
Shareholders often loan money to a corporation in order to keep the business operating, but be aware there are rules and regulations, which must be adhered to, so the loan is treated as a loan, and not reclassified as an equity contribution.
A Shareholder Loan Agreement (also called a “Stockholder Loan Agreement”) is used when a corporation is borrowing money from one of its shareholders (or “stockholders”); a shareholder (or “stockholder”) is lending money to its corporation; or a corporation owes money to a shareholder (or “stockholder”) (for salary, etc …
How does loan to shareholders’s Corp work?
However, repayment of the loan has to be handled carefully as it can cause the shareholder to be responsible for taxes on that income. The S corporation has the option to pass through losses to the owners. This can be deducted by shareholders to the total amount of their adjusted stock and loan basis.
Can a shareholder take out a personal loan?
Another alternative is making the corporation wait to repay the shareholder debt until there is a year with positive net income to restore most or all of the loan basis. Or the shareholder can take out a personal loan that’s separate from the business and avoid repayment from the corporation in a year that shows a loss.
How does repayment of S Corporation loans affect taxable income?
Repayment of the loans by the corporation has the potential to generate unexpected taxable income to the shareholder. First, a quick review of the mechanics of S corporation loans. An S corporation shareholder in a closely held corporation might make loans to the company to improve liquidity and to provide working capital.
When does a shareholder loan become a liability?
It is considered to be a liability (payable) of the business when the company owes the shareholder. You’ll see it as an asset (receivable) of the business when the shareholder owes the company. In this example, the company owes the shareholder $12,500 so it’s showing up as a liability on the balance sheet.
