Most founders put their own money into the company at some point, usually because salaries are due and a customer has not paid, and the quickest solution is a transfer from a personal account. I understand why nobody stops to document it at that moment, since the only concern that week is keeping the business running. The problem is that the question of what that money was does not go away, and it usually comes up again at a time when the company has other pressing things to deal with.
It usually comes up in one of two ways, either when a cofounder asks whether those transfers should give the founder a larger share of the company, or when an investor wants to know how much of a new round will go towards repaying the founder. By then the transfers may be a year old and each person remembers the arrangement a little differently, which is why I think the best time to settle the position is while everyone still remembers why each payment was made.
Decide what each payment was
The first question is whether a payment was a loan, a subscription for shares or the reimbursement of a company expense, because each of these leaves the founder in a different legal position. Money paid for shares makes the founder a shareholder, carrying the same risk as everyone else and with no right to be repaid, while a loan makes the founder a creditor whom the company must repay on the agreed terms. Where the founder simply paid a company bill from a personal card, the company may owe nothing more than a reimbursement of that amount.
It is quite common for a founder to want part of the money treated as shares and the remainder as a loan, and there is nothing wrong with that as long as the split is agreed in figures. The share portion then has to be allotted properly and filed at CAC, while the loan portion is recorded separately so that the two are never confused in the accounts. Money spent before the company was incorporated needs its own treatment, since the company did not exist when those costs were incurred, and I deal with that in moving the early project into the company.
Agree the balance and the borrower
Once the nature of the money is settled, the company and the founder need to agree how much is actually owed. The most reliable way to do this is to work from the bank statements, listing each transfer into the company and each supplier the founder paid directly, and then deducting anything the company has already reimbursed. The figure that remains is the balance the company accepts, and each part of it should be supported by a date and a payment record that anyone reviewing the accounts later can follow.
Where the business sits in a group, the agreement must also name the company that is borrowing. I often find that money was paid into the Nigerian company's account while the founder understood it to be a loan to the Delaware or UK parent. If that was the intention, there are in fact two arrangements, a loan from the founder to the parent and a separate funding arrangement between the parent and its subsidiary, and both sets of books need to record them consistently.
Agree when repayment is due
The repayment term I come across most often is an informal understanding that the company will repay the founder when it has money, and it is also the term that causes the most disagreement. The founder may expect repayment as soon as a large invoice is paid, while the finance team has already set that same money aside for salaries, and neither of them is being unreasonable. A fixed date, or a condition that can be measured objectively, removes that uncertainty, and if repayment is tied to the next funding round the agreement should state the minimum amount that has to be raised before repayment begins.
A loan that is repayable on demand allows the founder to call for the full balance at any time. That may seem harmless between people who trust each other, but the company should consider what would happen if the demand arrived in a difficult month, and a notice period or repayment by instalments usually gives it room to plan. If the founder is willing to wait while the company is under financial pressure, the agreement should describe what counts as financial pressure and what the founder may still demand during that period.
The agreement should also record whether the founder has committed to provide further funds, because a promise to cover six months of operating costs is something the company will plan around. It is worth setting out how each further advance is requested, and whether the company may repay early or in part. The governing law and the forum for resolving disputes also need to be chosen, particularly where the founder lives abroad and enforcing a judgment would be costly.
Interest and tax
If the loan carries interest, the agreement should state the annual rate and the date from which interest runs, and it should say whether unpaid interest is added to the balance, since simple and compound interest produce very different figures over two or three years. A short worked example in a schedule allows both sides to check the calculation, and where the loan is interest‑free the agreement should say so expressly.
Interest also has tax consequences that are easy to overlook. Under the Nigeria Tax Act 2025 and the other tax laws in force since January 2026, the company will generally need to deduct withholding tax when it pays interest, and because a founder is a connected person, the transfer pricing rules may apply to the rate charged. Where the lender is abroad, the rules also limit how much interest paid to connected persons the company can deduct, so the tax position should be checked before the first interest payment is made, and the agreement itself should be stamped.
For a founder lending from outside Nigeria, there is one more point I would always check. The money should come into the Nigerian company through an authorised dealer bank, which will issue a Certificate of Capital Importation, because without that certificate it can be very difficult to repay the loan through the official foreign exchange market. The agreement should also fix the currency of repayment and the exchange rate to be applied, and it should allocate responsibility for bank charges and exchange losses.
Security for the loan
Most founder loans are unsecured, which means the founder ranks as an ordinary creditor and depends on the company having enough money to repay. If the founder wants security over company assets, the charge must be properly created and registered at CAC within the period CAMA allows, and security over movable assets may also need to be registered on the National Collateral Registry.
Before any security is granted, the company's existing loan and investment documents should be read carefully, because many of them restrict new borrowing or new security. An investor who later finds a founder charge it never approved will not be happy about it, and it is much easier to discuss this before the charge is created than after.
Approval and signing
Because the founder is usually also a director, a loan from the founder to the company is a transaction in which a director has a personal interest. CAMA requires that interest to be disclosed to the board, and the articles normally determine whether the director may vote on the decision, so the minutes or written resolution should record both the disclosure and the way the vote was handled.
Investor consent is the step founders most often miss, since many shareholders' agreements treat new borrowing and related‑party transactions as matters requiring investor approval. That consent should be obtained before the agreement is signed, and the agreement should then be signed by someone with authority to bind the company. Where the same founder signs both for the company and as lender, the document should make each capacity clear, and I explain how approval and signing fit together in who is allowed to sign for the company.
The company should also keep the bank record showing that it received the money. I would suggest sending the founder a short loan statement every few months as well, because it gives both sides an early opportunity to correct an entry while the payment is still recent.
When new investors come in
An incoming investor will want to know whether its money is funding growth or repaying the founder, so it is better to disclose the loan early and show any intended repayment in the use‑of‑funds plan. Investors sometimes ask the founder to postpone repayment or to rank behind other creditors, an arrangement known as subordination, and if the founder agrees, the restriction should state clearly when repayment may resume.
Some founders choose to convert their loan into shares as part of the round. The conversion is a new agreement about price and share rights, and it requires the usual approvals and CAC filings, together with any pre‑emption offers or waivers owed to existing shareholders. The loan remains outstanding until the shares are actually issued, at which point the loan account should show the amount discharged by the conversion.
When the founder leaves
A founder who leaves the company remains a creditor for whatever is still owed under the loan. The exit settlement should therefore deal with the loan balance separately from employment payments and the sale of shares, with a separate figure for each, so that there is no later disagreement about what a particular payment was meant to cover. If the founder agrees to write off part of the loan, the release should state the amount and be approved by the board, and I discuss the wider exit process in working through a founder's departure.
If the company cannot pay its debts
This is the situation where I would advise the most care. If the company is struggling to pay its other creditors, a repayment to a founder can later be challenged as a preference if the company goes into liquidation, and the directors who approved it may be asked to account for their decision. For that reason, the directors should take advice on the company's financial position before any repayment to a founder is made in those circumstances.
In a winding‑up, the founder is paid in the order the law prescribes, which places secured creditors and preferential debts first and also puts any creditor the founder agreed to rank behind ahead of the founder. An unsecured founder may therefore recover only part of the loan, or nothing at all, and the liquidator will need a final loan statement supported by the company's records, a process I explain in closing a startup and settling what remains.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.