Document background
The Convertible Loan Agreement is commonly used in Saudi Arabia for growth-stage companies seeking alternative financing options that comply with Islamic finance principles. This document is particularly relevant when traditional equity investment may be premature, but there's potential for future equity participation. It provides a Shariah-compliant structure for investors to provide financing while maintaining the option to convert their investment into equity shares. The agreement must comply with Saudi Arabian Companies Law, Capital Market Authority regulations, and Shariah principles, making it suitable for both local and international investors familiar with the Saudi market. It typically includes detailed provisions for profit-sharing instead of interest, conversion triggers, valuation mechanics, and regulatory compliance requirements.
