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An IOU Agreement is a simple written promise to repay money borrowed from someone else. It acts as a basic form of debt contract, documenting who owes what to whom and when they'll pay it back. While less formal than a promissory note, IOUs still hold legal weight in Canadian civil courts when they contain key details like names, amounts, and payment terms.

Under Canadian contract law, these agreements become legally binding once both parties sign them, though they're typically used for smaller personal loans between friends, family, or small business associates. Smart lenders include interest rates and late payment terms in their IOUs, but keep in mind that interest rates must stay within Criminal Code limits to remain enforceable.

Use an IOU Agreement when lending money informally to friends, family members, or business associates in situations where a full legal loan contract feels too formal. This simple document helps prevent misunderstandings and provides basic legal protection, especially for amounts between $500 and $5,000 in Canada.

The agreement becomes particularly valuable when lending larger sums, dealing with extended repayment periods, or if there's any chance of future disputes. It offers more protection than a verbal agreement but requires less paperwork than a formal promissory note. For amounts over $5,000, or when dealing with complex repayment terms, consider using a more detailed loan agreement instead.

• Basic IOU Agreement: A simple one-page document stating the loan amount, repayment date, and basic borrower/lender details
• Interest-Bearing IOU: Includes specific interest rate terms and calculation methods, following Canadian usury laws
• Installment IOU: Details multiple payment dates and amounts, with a clear repayment schedule
• Secured IOU: Names specific assets as collateral for the loan, offering additional protection for the lender
• Business IOU: Contains more formal terms and conditions, often used between small business partners or contractors

• Individual Lenders: Friends, family members, or acquaintances who loan personal money and want basic legal protection
• Individual Borrowers: People seeking informal loans who prefer simpler documentation than bank requirements
• Small Business Owners: Entrepreneurs using IOUs for short-term cash flow between trusted business associates
• Contractors: Independent workers accepting delayed payment terms for services rendered
• Private Investors: Individuals making small investments or bridge loans in informal business settings
• Legal Advisors: Lawyers who review or draft IOUs to ensure compliance with Canadian lending laws

• Basic Details: Gather full legal names, addresses, and contact information for both lender and borrower
• Loan Terms: Define the exact amount, currency, and agreed-upon repayment date
• Interest Details: Calculate any interest rate, ensuring it stays within legal limits under Canadian law
• Payment Method: Specify how and where payments will be made
• Late Payment Terms: Outline consequences for missed payments or default
• Signatures: Plan for both parties to sign with a witness present
• Documentation: Keep copies for all parties and consider digital backup storage

• Identification: Full legal names and addresses of both lender and borrower
• Loan Amount: Specific sum in Canadian dollars, written in both numbers and words
• Payment Terms: Clear repayment date or schedule, including any installment details
• Interest Rate: Rate expressed as annual percentage, complying with Criminal Code limits
• Default Clause: Consequences of missed payments or breach of agreement
• Governing Law: Statement that Canadian law applies to the agreement
• Signature Block: Space for dated signatures of both parties and a witness
• Amendment Terms: How changes to the agreement must be handled

A key document often confused with an IOU Agreement is the Convertible Agreement. While both involve money changing hands, they serve distinctly different purposes in Canadian law.

• Legal Complexity: IOUs are simple promissory documents for straightforward loans, while Convertible Agreements involve complex investment terms and potential equity conversion
• Typical Users: IOUs work for personal loans between individuals; Convertible Agreements are used by startups and investors in formal business dealings
• Documentation Required: IOUs need basic loan terms and signatures; Convertible Agreements require detailed valuation caps, discount rates, and conversion triggers
• Enforcement Mechanisms: IOUs rely on basic contract law for enforcement; Convertible Agreements involve corporate law and securities regulations
• Future Implications: IOUs end with loan repayment; Convertible Agreements can result in ownership changes and ongoing business relationships