Glossary · Funding instruments · Updated
A shareholder current account is a cash advance made by a shareholder to their company, repayable and creating no new shares. It is the simplest way for a founder to fund the business temporarily without changing the ownership split.
Simplicity is its main advantage. No heavy formalities, no shareholder meeting, no filing: a transfer and a short agreement are enough. That is why it is often used to absorb a few weeks of cash timing, or to fund an urgent need between rounds.
That flexibility is also its limit. A current account is in principle repayable at any time, making it a short-term liability on the balance sheet. That classification affects how the accounts read, particularly to a bank, and sets this financing clearly apart from equity.
At a funding round, investors always address it. They will not accept their money being used to repay a founder's advance, and almost always require either that the account be locked for a defined period or that it be converted into shares as part of the round.
Example: a current account advance before a round
A founder advances cash to bridge a delayed customer payment.
| Amount advanced | €30,000 |
|---|---|
| Shares created | none |
| Dilution | 0% |
| Formalities required | a short current account agreement |
| Interest | possible, within the tax-deductible rate |
| Repayment in principle | at any time, unless locked by agreement |
| Accounting treatment | a liability, not equity |
| Common investor requirement | lock-up or conversion into shares at closing |
Converting turns the €30,000 into shares at the round's valuation, which is often the simplest outcome. It does mean accepting that the money will never come back as cash.
The common mistake
Funding the company long-term through a current account with no written agreement. If a shareholder dispute or financial difficulty arises, the claim is hard to enforce without documentation, and the tax authority can challenge the deductibility of any interest.
Frequently asked questions
Does a shareholder current account dilute the cap table?+
No. It is a loan, not equity: no shares are created and ownership is unchanged. In exchange, the amount sits as a liability and does not strengthen the company's equity position.
What happens to a current account during a funding round?+
Investors almost always require it to be either locked for a defined period or converted into shares at closing. They will not have their money repaying a founder advance instead of funding growth.
Related terms
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