Convertible Promissory Note Purchase Agreement - England and Wales

Convertible Promissory Note Purchase Agreement for the United Kingdom

Convertible Promissory Note Purchase Agreement Template for England and Wales

A legally binding agreement governed by English and Welsh law that establishes the terms and conditions under which investors purchase convertible promissory notes from a company. The agreement details the note's principal amount, interest rate, maturity date, conversion mechanisms, and investor rights. It includes provisions for both mandatory and optional conversion events, along with protective clauses for both the issuing company and investors.

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What is a Convertible Promissory Note Purchase Agreement?

The Convertible Promissory Note Purchase Agreement is commonly used in early-stage financing rounds under English and Welsh law, particularly when companies need to raise capital quickly without immediately setting a valuation. This document establishes the framework for issuing debt that can later convert into equity, typically during a qualified financing round. It includes essential terms such as conversion price, interest rates, maturity dates, and investor protections. The agreement is particularly useful for bridge financing between larger equity rounds or when traditional equity financing might be premature or impractical.

What sections should be included in a Convertible Promissory Note Purchase Agreement?

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

2. Background: Context and purpose of the agreement, including company information and financing objectives

3. Definitions: Key terms used throughout the agreement

4. Purchase and Sale: Terms of the note purchase, including amount and closing conditions

5. The Notes: Description of the notes, including principal amount, interest rate, and maturity date

6. Conversion Rights: Terms and conditions for converting notes into equity

7. Representations and Warranties: Statements of fact and assurances from both parties

8. Events of Default: Circumstances constituting default and consequences

9. Covenants: Ongoing obligations of the parties during the term of the notes

10. Miscellaneous: Standard boilerplate provisions including notices, amendments, governing law, and jurisdiction

What sections are optional to include in a Convertible Promissory Note Purchase Agreement?

1. Information Rights: Provisions granting investors rights to receive periodic financial and operational information from the company

2. Board Observer Rights: Rights granted to noteholders to attend and observe board meetings

3. Pre-emptive Rights: Rights granted to noteholders to participate in future fundraising rounds to prevent dilution

4. Most Favored Nation Provision: Protection ensuring noteholders receive the benefit of any more favorable terms granted to future investors

5. Registration Rights: Rights related to the registration of converted shares for public trading (if applicable)

What schedules should be included in a Convertible Promissory Note Purchase Agreement?

1. Form of Note: Template of the actual convertible promissory note including all terms and conditions

2. Capitalization Table: Current ownership structure of the company showing all outstanding shares and securities

3. Disclosure Schedule: Exceptions and qualifications to the representations and warranties made in the agreement

4. Conversion Mechanics: Detailed procedures and calculations for converting notes into equity

5. Form of Accredited Investor Questionnaire: Questionnaire to confirm investor qualifications under applicable securities laws

Authors

Alex Denne

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

Cost

Free to use

Relevant legal definitions

Clauses

Relevant Industries

Financial Services
Real Estate
Retail
Professional Services

Relevant Teams

Finance
Legal
Credit Control
Treasury
Risk Management

Relevant Roles

Chief Financial Officer
Credit Controller
Finance Manager
Legal Counsel
Collections Manager

Industries

Financial Services and Markets Act 2000: Primary legislation governing financial services and markets in the UK, particularly relevant for determining if the note constitutes a 'transferable security' and whether FCA authorization is required

Financial Services Act 2012: Updates and amends FSMA 2000, establishing the regulatory framework for financial services in the UK

Financial Services and Markets Act 2000 (Regulated Activities) Order 2001: Specifies which activities require FCA authorization and relevant exemptions

Companies Act 2006: Primary legislation governing company operations, particularly sections relating to share capital, share issuance, and company securities

Company Securities (Insider Dealing) Act 1985: Legislation governing insider dealing and securities trading regulations

Law of Property (Miscellaneous Provisions) Act 1989: Governs formal requirements for certain types of contracts and property transactions

Unfair Contract Terms Act 1977: Regulates unfair terms in contracts and limits how far civil liability for breach of contract can be avoided

Money Laundering Regulations 2017: Regulations concerning anti-money laundering and terrorist financing requirements

Proceeds of Crime Act 2002: Legislation dealing with money laundering and proceeds of crime

UK General Data Protection Regulation: Post-Brexit data protection regulation governing the processing of personal data

Data Protection Act 2018: UK's implementation of data protection standards, working alongside UK GDPR

Consumer Rights Act 2015: Protects consumer rights and regulates business-to-consumer contracts

Consumer Credit Act 1974: Regulates credit agreements and provides consumer protection in credit transactions

Common Law Contract Principles: Fundamental principles of contract formation, including offer, acceptance, consideration, and intention to create legal relations

FCA Regulatory Framework: Financial Conduct Authority's rules and guidelines, including Prospectus Regulation Rules and Financial Promotion Rules

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What is a Convertible Promissory Note Purchase Agreement?

What sections should be included in a Convertible Promissory Note Purchase Agreement?

What sections are optional to include in a Convertible Promissory Note Purchase Agreement?

What schedules should be included in a Convertible Promissory Note Purchase Agreement?

Authors

Alex Denne

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