A shareholder loan is separate from the shares

Establish who owes whom

A shareholder may have lent funds to the company, or the company may have advanced funds to a shareholder. Similar ledger labels can hide opposite economic positions. Reconcile the balance, identify the counterparty and confirm whether it is an asset or liability from the company’s perspective.

Then examine the underlying terms, interest, repayment arrangements, security, subordination and any dispute. A ledger entry alone does not establish the legal terms or the amount recoverable. Ask the relevant adviser to clarify uncertain classification rather than treating all related-party balances as interchangeable.

Reconcile the balance before assessing treatment

Separate company equity from the lender’s claim

Assume a hypothetical company has an operating value of $600,000 and a $100,000 loan owed to a shareholder. If that loan is treated as debt, with no other adjustments, the illustrative equity value is $500,000. The $100,000 loan claim remains a separate item.

If the same person owns all the shares and holds the loan, a transaction may deal with both interests. Adding the loan to the equity value in that person’s settlement schedule is different from omitting the company’s debt when valuing the shares. For partial ownership, the distinction is especially important because the lender and shareholders may not have matching proportions.

Document changes before using a new balance

A proposed repayment, forgiveness or conversion can change the position, but the valuation must state whether it assesses the existing arrangement or an expressly assumed transaction. Do not silently remove a balance because the parties expect to resolve it later.

Loans from a company to a shareholder can also raise tax and legal questions outside a valuation’s scope. Obtain advice on those consequences. For valuation purposes, clarify recoverability, timing and the intended treatment, then keep the share-value calculation and other settlement amounts visibly separate.

• Provide the ledger and supporting agreement.
• Identify balances involving different family members or entities.
• Disclose disputed balances and undocumented movements.
• Explain proposed changes without assuming they have occurred.

General educational information. Examples are hypothetical and do not value a real business. The appropriate treatment depends on the purpose, evidence and agreed scope.