Microgrids comprising of inverter-interfaced distributed generation (IIDG) units can be subjected to a high penetration level of dynamic induction motor (IM) loads and rectifier interfaced active loads, which may act as constant power loads. Constant power loads present a negative incremental resistance leading to the degradation of stability. Whereas, the highly non-linear IM load, which couples voltage, supply frequency, active power and reactive power dynamics, challenges the stability of islanded AC microgrids (ACMGs). Further, the stability of these microgrids is also affected by the load sharing among IIDG units. To address the aforementioned difficulties, this paper investigates the impact of load dynamics and load sharing among IIDG units on the stability and dynamic performance of islanded ACMGs. To explore this, a full dynamical non-linear state-space model of a studied islanded AC microgrid with both static and dynamic IM loads has been developed in synchronous (DQ) reference frame. The developed non-linear state-space model is linearized around its steady-state operating point to analyze the small-signal stability. Selective modal analysis and time-domain simulation results have been presented to observe the impact of load dynamics as well as load sharing among IIDG units on the stability and dynamic performance of islanded ACMGs.