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Convertible Loan Note Agreement for the United States

Convertible Loan Note Agreement Template for United States

A Convertible Loan Note Agreement is a legal document used in the United States that governs the terms of a debt investment which can convert into equity under specified conditions. It outlines the loan amount, interest rate, conversion mechanisms, and investor rights. The agreement must comply with U.S. federal securities laws, including the Securities Act of 1933 and applicable state 'Blue Sky' laws, particularly regarding private placement exemptions and accredited investor requirements.

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Convertible Loan Note Agreement

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What is a Convertible Loan Note Agreement?

A Convertible Loan Note Agreement is commonly used by early-stage companies in the United States seeking bridge financing or initial investment. This document type is particularly valuable when company valuation is uncertain or parties want to defer valuation discussions to a future funding round. The agreement details loan terms, conversion triggers (such as qualified financing rounds), conversion price mechanisms, and investor protections. It must be structured to comply with U.S. securities regulations, including SEC requirements and state-specific securities laws.

What sections should be included in a Convertible Loan Note Agreement?

1. Parties: Identification of lender and borrower, including full legal names and addresses

2. Background: Context of the loan, purpose, and relationship between parties

3. Definitions: Key terms used throughout the agreement including Conversion Price, Maturity Date, Qualifying Financing

4. Loan Amount and Terms: Principal amount, interest rate, and repayment terms

5. Conversion Rights: Terms and conditions for converting the loan into equity

6. Events of Default: Circumstances constituting default and consequences

7. Representations and Warranties: Standard statements about company status, authority, and compliance

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

1. Security: Terms of any security/collateral (include when loan is secured)

2. Information Rights: Lender's rights to company information (include for sophisticated investors requiring ongoing information)

3. Board Observer Rights: Rights to attend board meetings (include for strategic investors)

4. Pre-emptive Rights: Rights to participate in future fundraising (include for larger investors seeking anti-dilution protection)

What schedules should be included in a Convertible Loan Note Agreement?

1. Cap Table: Current shareholding structure of the company

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

3. Term Sheet: Summary of key commercial terms agreed

4. Company Information: Key corporate details including registration numbers, directors

5. Calculation Examples: Examples of conversion calculations in different scenarios

Authors

Alex Denne

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

Jurisdiction

United States

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Clauses






























Industries

Securities Act of 1933: Federal law governing primary securities offerings, including Regulation D for private placements of convertible notes

Securities Exchange Act of 1934: Federal law regulating secondary market trading and ongoing reporting requirements for securities

JOBS Act of 2012: Legislation that eased securities regulations for small businesses, affecting how convertible notes can be offered and sold

Blue Sky Laws: State-specific securities laws governing registration requirements, disclosures, and state-level compliance for security offerings

State Usury Laws: State-specific laws regulating maximum allowable interest rates and terms for loans

State Corporate Laws: State-specific laws governing corporate formation, operation, and securities issuance (e.g., Delaware General Corporation Law)

Internal Revenue Code: Federal tax laws governing the treatment of convertible debt, including debt-to-equity conversions and interest deductibility

Uniform Commercial Code: State-adopted uniform laws governing commercial transactions, particularly Articles 3 (Negotiable Instruments) and 9 (Secured Transactions)

Banking Regulations: Federal and state regulations governing lending activities, particularly relevant if the lender is a financial institution

U.S. Bankruptcy Code: Federal laws governing bankruptcy proceedings, including treatment of convertible notes and subordination provisions

Investment Company Act of 1940: Federal law regulating investment companies and their activities, potentially affecting both lenders and borrowers

Teams

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