Convertible Loan Note Agreement Template

A Convertible Loan Note Template is a legal document that outlines the terms and conditions of a loan that can be converted into equity, typically common stock, under specific circumstances. This document is crucial for startups and early-stage companies seeking to raise capital while maintaining flexibility and mitigating dilution. To ensure the template’s professionalism and legal soundness, it’s essential to consider the following key elements:

1. Clear and Concise Language

Plain Language: Avoid complex legal jargon and use clear, concise language that is easy to understand.

Active Voice: Employ active voice to make the document more engaging and direct.

Consistent Formatting: Maintain consistent formatting throughout the document, including font size, font style, and line spacing.

2. Essential Information

Parties Involved: Clearly identify the lender and the borrower.

Loan Amount: Specify the exact amount of the loan.

Interest Rate: Indicate the interest rate, if applicable.

Maturity Date: Set a definitive date for the loan to mature.

Conversion Rights: Detail the conditions under which the loan can be converted into equity.

Valuation Cap: Establish a maximum valuation cap for the company at the time of conversion.

Discount Rate: Specify the discount rate, if any, applied to the conversion price.

Payment Terms: Outline the repayment schedule, including any grace periods.

Default and Remedies: Define the consequences of default and the remedies available to the lender.

Governing Law: Specify the governing law of the agreement.

Dispute Resolution: Indicate the preferred method for resolving disputes, such as arbitration or litigation.

3. Professional Design Elements

Clean Layout: Use a clean and uncluttered layout to enhance readability.

Professional Font: Choose a professional font like Times New Roman, Arial, or Calibri.

Consistent Formatting: Maintain consistent formatting throughout the document.

Headings and Subheadings: Use headings and subheadings to organize the content and improve navigation.

White Space: Utilize white space effectively to break up the text and improve readability.

Professional Logo: Include the company’s logo at the top of the document.

4. Legal Considerations

Seek Legal Counsel: Consult with an attorney to ensure the template complies with all relevant laws and regulations.

Review and Update: Regularly review and update the template to reflect changes in laws and regulations.

Consider Tax Implications: Consult with a tax advisor to understand the tax implications of the loan and conversion.

5. Specific Clauses to Include

Conversion Trigger: Define the specific events or conditions that will trigger the conversion of the loan into equity.

Conversion Price: Specify the formula or method used to calculate the conversion price.

Anti-Dilution Protection: Include provisions to protect the lender from dilution in the event of future financing rounds.

Information Rights: Grant the lender certain rights to receive information about the company’s financial performance and operations.

Negative Pledge: Restrict the borrower from incurring additional debt without the lender’s consent.

Events of Default: Define specific events that would constitute a default, such as failure to make payments or breach of other covenants.

Acceleration: Provide the lender with the right to accelerate the loan and demand immediate repayment in the event of default.

Governing Law and Jurisdiction: Specify the governing law and jurisdiction for resolving disputes.

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By incorporating these elements into your Convertible Loan Note Template, you can create a professional and legally sound document that protects the interests of both the lender and the borrower. Remember to consult with legal counsel to ensure that the template is tailored to your specific needs and complies with all relevant laws and regulations.