What is a shareholder?

A shareholder, also called a member, holds one or more shares in a company. That gives them an economic interest in the business: a share of its profits through dividends and a share of its value if the company grows. Shareholders are not automatically managers. The board of directors runs the company, but shareholders decide the big things, such as appointing directors, approving significant transactions and winding the company up.

In the typical Australian small or medium business, the shareholders and directors are the same people. That overlap matters in lending: the person who signs a business loan as director and guarantor is also the owner whose stake the lender relies on for accountability.

When a company applies for a business loan, equipment finance or a commercial property loan, the lender looks past the company to the people behind it. Lenders typically ask every shareholder with a significant stake to give a personal guarantee, so the people who benefit from the borrowing also carry the risk if the company defaults. Under AML/CTF obligations they must also identify the company's beneficial owners: the natural persons who ultimately hold 25% or more of the shares or voting rights, traced through any corporate shareholders, or who otherwise control the company.

Lenders also weigh how stable the ownership is. A single owner-operator is a different risk from a company with several passive shareholders, and a change in ownership during the loan term can trigger review clauses. For larger facilities, shareholders may be asked to contribute equity, and the personal credit history, financial position and business experience of key shareholders form part of the assessment.

A shareholder guarantee is a personal guarantee given by one or more shareholders to support the company's borrowing. It can be limited, capped at a set dollar amount, or unlimited, covering the full debt plus costs and interest. The lender may also take security over the guarantor's own assets, such as a mortgage over their home.

If the company defaults and goes into liquidation, the lender can chase the guarantor for any shortfall once the company's assets are sold. Guarantors should get independent legal and financial advice before signing. Courts have set guarantees aside where the guarantor did not understand the obligation or was under undue influence.

Most loan agreements require the borrower to tell the lender about material changes in shareholding, and some require consent before shares can be transferred. A change can mean the guarantors are no longer involved in the business, that new owners have different financial capacity, or that a controlling shareholder's exit makes the borrower a different credit risk.

If you plan to sell shares, bring in investors or restructure ownership mid-term, check the facility agreement for change-of-control provisions and talk to your lender or broker before you proceed.