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Convertible Note Agreement Template for England and Wales

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Key Requirements PROMPT example:

Convertible Note Agreement

I need a Convertible Note Agreement for my UK-based AI startup to secure £500,000 in bridge financing from an angel investor, with a 20% discount rate and 8% annual interest rate, convertible at the next qualified funding round.

Document background
A Convertible Note Agreement is commonly used in early-stage funding rounds where establishing a company valuation may be premature or complex. Under English and Welsh law, this instrument provides companies with immediate access to capital while deferring equity valuation discussions. The agreement typically includes provisions for interest accrual, conversion triggers (such as qualified financing rounds), discount rates, and valuation caps. It serves as a bridge between debt and equity financing, offering investors the potential upside of equity while providing the security of debt, all within the established framework of English corporate and securities law.
Suggested Sections

1. Parties: Identification of the parties entering into the agreement

2. Background: Context and purpose of the convertible note arrangement

3. Definitions: Key terms used throughout the agreement

4. Subscription: Terms of the note subscription including amount and payment

5. Interest: Interest rate and payment terms

6. Conversion Rights: Terms and conditions for converting the note to equity

7. Repayment: Terms for repayment if conversion doesn't occur

8. Events of Default: Circumstances constituting default and consequences

Optional Sections

1. Security: Security arrangements if the note is secured against company assets

2. Information Rights: Rights of noteholder to receive company information and financial reports

3. Board Observer Rights: Rights of noteholder to attend and observe board meetings

Suggested Schedules

1. Form of Conversion Notice: Template notice for exercising conversion rights

2. Capitalization Table: Current and post-conversion capital structure

3. Conditions Precedent: Conditions to be satisfied before completion

4. Form of Note Certificate: Template for the physical note certificate if required

Authors

Alex Denne

Head of Growth (Open Source Law) @ ºìÐÓÖ±²¥ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Industries

Companies Act 2006: Primary legislation governing company operations, including share capital, issuance, directors' duties, company registration, and shareholder rights provisions

Financial Services and Markets Act 2000 (FSMA): Key legislation covering financial promotion restrictions, regulatory requirements for investment activities, and securities regulations

Financial Services Act 2012: Updates to financial services regulation and modifications to FSMA, providing modern context to financial services oversight

Consumer Credit Act 1974: Legislation governing consumer credit arrangements, relevant if the note could be interpreted as a consumer credit instrument

FCA Regulations: Regulatory framework covering regulated activities, prospectus requirements, and financial promotion rules set by the Financial Conduct Authority

Law of Property (Miscellaneous Provisions) Act 1989: Legislation setting out requirements for executing deeds and formal requirements for contracts

Contract Law: Common law principles governing contract formation, consideration requirements, and terms and conditions

Insolvency Act 1986: Legislation governing creditor rights and priority of claims in insolvency scenarios

Corporate Insolvency and Governance Act 2020: Recent legislation updating insolvency provisions and corporate governance requirements

Money Laundering Regulations 2017: Regulations setting out due diligence requirements and compliance obligations for financial transactions

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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