[{"data":1,"prerenderedAt":524},["ShallowReactive",2],{"document-convertible-note-agreement-D870":3},{"document":4,"label":21,"preview":11,"thumb":22,"description":23,"descriptionCustom":6,"apiDescription":5,"pages":8,"extension":10,"parents":24,"breadcrumb":28,"related":34,"customDescModule":176,"customdescription":23,"mdFm":177,"mdProseHtml":523},{"description":5,"descriptionCustom":6,"label":7,"pages":8,"size":9,"extension":10,"preview":11,"thumb":12,"svgFrame":13,"seoMetadata":14,"parents":15,"keywords":20},"CONVERTIBLE NOTE AGREEMENT This Convertible Note Agreement (\"Agreement\") is made and effective the [DATE], BETWEEN: [YOUR COMPANY NAME] (the \"Company\"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [YOUR COMPLETE ADDRESS] AND: [NOTE HOLDERS NAME] (the \"Note Holders\"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] WHEREAS, Note Holders are willing to lend Company the aggregate sum of [AMOUNT] be evidenced by [%] Convertible Promissory Notes. In consideration of the mutual covenants and conditions herein contained, the parties hereby agree, represent and warrant as follows: Issue of Notes The Company will authorize the issue of its [%] Convertible notes (hereinafter called \"Notes\") in the aggregate principal amount of [amOUNT] to be dated [date] to mature on [date] to bear interest on the unpaid principal thereof at the rate of [%] per annum until maturity, payable on the [day] of [month] in each year, commencing on [date], [year], and after maturity at the rate of [%] per annum until paid, and to be substantially in the form of Exhibit A attached hereto. For the purposes of calculating interest for any period for which the interest shall be payable, such interest shall be calculated on the basis of a [number] day month and a [number] day year. The Company will promptly and punctually pay to Note Holders or their nominee the interest on any of the Notes held by Note Holders without presentment of the Notes. In the event that Note Holders shall sell or transfer any of the Notes, they shall notify the Company of the name and address of the transferee. In the event the Company defaults on any installment of interest or principal, then any Holder of these Notes may, at his option, without notice, declare the entire principal and the interest accrued thereon immediately due and payable and may proceed to enforce the collection thereof. All the Notes shall contain a confession of judgment provision. The Company will also authorize the issue of [number] shares of its common stock (hereinafter called \"The Stock\") and will authorize the issuance of and reserve for such purchase such a number of additional shares of common stock (hereinafter called the \"Conversion Stock\") as may from time to time be the maximum number required for issuance upon conversion of the Notes pursuant to the conversion privileges hereinafter stated. Sale and Purchase of Notes and Stock The Company will sell the Notes to the purchasers listed on Exhibit A, each of whom agrees to purchase the principal amount of the Notes set opposite their names, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein, at the purchase price of [%] of the principal amount. Representations and Warranties by the Company Company is a corporation duly organized and existing in good standing under the laws of the State of [state/province] has the corporate power to own its own property and to carry on in the business as it is now being conducted. Company has on its corporate records the names of the following individuals who each own [number] shares of common stock which constitute all the issue and outstanding capital stock of the Company as of this date. The Company has furnished to the Note Holders an Offering Circular which is attached hereto as Exhibit B. The financial statements contained therein are true and correct and have been prepared in accordance with generally accepted accounting principles consistently followed throughout the period indicated. There is no action or proceeding pending or, to the knowledge of the Company, threatened against the Company before any court or administrative agency, the determination of which might result in any material adverse change in the business of the Company. The Company has title to the respective properties and assets including the properties and assets reflected on the financial statement for the year ending [date] and which assets and properties are subject to no liens, mortgages, encumbrances or charges except a security interest to [specify]. The Company is not a party to any contract or agreement or subject to any restriction which materially and adversely affects its business, property or assets, or financial condition, and neither the execution nor delivery of this Agreement, nor the confirmation of the transactions contemplated herein, nor the fulfillment of the terms hereof, nor the compliance with the terms and provisions hereof and of the Notes, will conflict with or result in the breach of the terms, conditions or provisions or constitute a default, under the Articles of Incorporation or Code of Regulations of the Company or of any Agreement or instrument to which the Company is now a party. The Company has not declared, set aside, paid or made any dividend or other distributions with respect to its capital stock and has not made or caused to be made directly or indirectly, any payment or other distribution of any nature whatsoever to any of the holders of its capital stock except for regular salary payments for services rendered and the reimbursement of business expenses. All of the equipment and automobiles of the Company are in good condition and repair. There are no outstanding options or rights to purchase shares of the Company and no outstanding securities with the right of conversion into shares of the Company. The Company owns or possesses adequate licenses or other rights to use, all patents, trademarks, trade names, trade secrets, and copyrights used in its business. No one has asserted to the Company that its operations infringe on the patents, trademarks, trade secrets or other rights utilized in the operation of its business. Neither the Company nor any agent or employee acting in its behalf has offered the Notes or the Stock or any portion thereof for sale to or solicited in any offer to buy the same or any thereof from any person or persons other than the purchasers listed in the attached Exhibit A and [NUMBER] other persons, and neither the Company nor any agent or employee acting in its behalf will sell or offer for sale the Notes or Stock or any portion thereof to or solicit any offer to buy the Notes or the Stock from any person or persons so as to bring the issuance or sale thereof within the provisions of Section [NUMBER] of the [ACT]. Representations and Warranties by the Note Holders The Note Holders represent and warrant that: The Note Holders are subscribing for the Notes and Stock for investment purposes and not with the view to or for sale in connection with any distribution thereof and that they have no present intent to sell, give or otherwise transfer the Notes or Stock. The Note Holders state that they are and residents of the State of [state/province]. The Note Holders understand that this is a highly speculative investment in a Company which is insolvent both from a legal and an equity standpoint. Individuals represent and warrant that they have a net worth in excess of [amount] exclusive of their residences and that they are sophisticated investors who are knowledgeable about the [specify] business. Note Holders state that they will be active in the affairs of the business of the Company. Prepayment of the Notes Company shall have the right to make prepayments on principal of the Notes at any time on [number] days written notice. Such prepayment shall be accompanied by a payment of all accrued interest to date. There shall be no premium for the amount so prepaid. Conversion",null,"Convertible Note Agreement","6",64,"doc","https://templates.business-in-a-box.com/imgs/1000px/convertible-note-agreement-D870.png","https://templates.business-in-a-box.com/imgs/250px/870.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#870.xml",{"title":6,"description":6},[16,19],{"label":17,"url":18},"Legal Agreements","/templates/business-legal-agreements/",{"label":17,"url":18},"convertible note agreement","Convertible Note Agreement Template","https://templates.business-in-a-box.com/imgs/400px/870.png","\u003Ch4>Understanding a Convertible Note Agreement\u003C/h4>\n\u003Cp>For startups and growing businesses seeking flexible financing options, a Convertible Note Agreement presents an attractive pathway to raise funds without immediately diluting ownership. This financial instrument is particularly appealing in the early stages of a company's lifecycle, where valuing the company can be challenging. It bridges the gap between the business's need for immediate capital and the investors' opportunity to participate in the company's future success.\u003C/p>\n\u003Cp>A Convertible Note Agreement template is a vital resource for business owners, streamlining the process of drafting this complex financial document. It ensures that all legal and financial nuances are adequately covered, providing a solid foundation for both parties involved in the investment.\u003C/p>\n\u003Ch5>What is a Convertible Note Agreement Template?\u003C/h5>\n\u003Cp>A Convertible Note Agreement template is a standardized document that outlines the terms under which an investor provides a loan to a startup or growth-stage company, with the intention that the loan will eventually convert into equity in the company. This template facilitates the negotiation process by providing a clear framework for the loan amount, interest rate, conversion mechanics, and maturity date, among other critical terms.\u003C/p>\n\u003Cp>\u003Ch5 id=\"key-components-service-agreement\">Key Elements of a Convertible Note Agreement Template\u003C/h5>A well-structured Convertible Note Agreement Template should include several key components:\u003C/p>\n\u003Cul>\n\u003Cli>\u003Cstrong>Loan Amount\u003C/strong> - The principal amount of the loan provided to the company.\u003C/li>\n\u003Cli>\u003Cstrong>Interest Rate\u003C/strong> - Specifies the interest rate applied to the loan until conversion or repayment.\u003C/li>\n\u003Cli>\u003Cstrong>Conversion Mechanics\u003C/strong> - This section details the conditions under which the note will convert into equity, including conversion triggers, valuation caps, and discount rates.\u003C/li>\n\u003Cli>\u003Cstrong>Maturity Date\u003C/strong> - The date by which the note is expected to convert or be repaid.\u003C/li>\n\u003Cli>\u003Cstrong>Valuation Cap\u003C/strong> - This cap sets the maximum valuation at which the note can convert into equity, protecting investors from dilution in subsequent financing rounds.\u003C/li>\n\u003Cli>\u003Cstrong>Discount Rate\u003C/strong> - This rate provides early investors with a discount on the price per share at the time of conversion, acknowledging the additional risk they took by investing early.\u003C/li>\n\u003Cli>\u003Cstrong>Repayment Terms\u003C/strong> - Outlines the circumstances under which the loan must be repaid, including scenarios where conversion is not triggered.\u003C/li>\n\u003C/ul>\n\u003Ch5>Related Documents for a Convertible Note Agreement\u003C/h5>\n\u003Cp>When drafting a Convertible Note Agreement, incorporating related documents can strengthen the legal and financial structure of the deal:\u003C/p>\n\u003Cul>\n\u003Cli>\u003Cstrong>\u003Ca href=\"https://www.business-in-a-box.com/template/term-sheet-D473/\">Term Sheet\u003C/a>\u003C/strong> - Summarizes the key financial and legal conditions of the investment.\u003C/li>\n\u003Cli>\u003Cstrong>\u003Ca href=\"https://www.business-in-a-box.com/template/rights-agreement-D13037/\">Rights Agreement\u003C/a>\u003C/strong> - This agreement details the rights and privileges granted to shareholders, such as information rights and rights of first refusal.\u003C/li>\n\u003Cli>\u003Cstrong>\u003Ca href=\"https://www.business-in-a-box.com/template/subscription-agreement-D12537/\">Subscription Agreement\u003C/a>\u003C/strong> - A contract between the company and investors for the sale of the company's securities.\u003C/li>\n\u003Cli>\u003Cstrong>\u003Ca href=\"https://www.business-in-a-box.com/template/shareholders-agreement-D1016/\">Shareholders Agreement\u003C/a>\u003C/strong> - This agreement outlines the rights and obligations of shareholders, including transfer restrictions, board composition, and dividend policies.\u003C/li>\n\u003C/ul>\n\u003Ch5>Why Use Business in a Box to Create a Convertible Note Agreement?\u003C/h5>\n\u003Cp>Business in a Box is the quintessential toolkit for business owners navigating the complexities of creating a Convertible Note Agreement, offering unparalleled benefits:\u003C/p>\n\u003Cul>\n\u003Cli>\u003Cstrong>Professionally Designed Templates\u003C/strong> - These templates were developed in collaboration with financial experts and legal professionals to ensure that your Convertible Note Agreements are comprehensive and comply with current regulations.\u003C/li>\n\u003Cli>\u003Cstrong>Customizability\u003C/strong> - Allows you to tailor the agreement to fit the specific needs of your business and investment scenario, ensuring a perfect match for both parties.\u003C/li>\n\u003Cli>\u003Cstrong>Efficiency\u003C/strong> - Saves valuable time by providing a ready-to-use template that simplifies the document creation process, allowing you to focus on securing your investment.\u003C/li>\n\u003Cli>\u003Cstrong>Extensive Resource Library\u003C/strong> - Offers access to a broad spectrum of business and legal documents, supporting a wide array of needs beyond just financing agreements.\u003C/li>\n\u003C/ul>\n\u003Cp>Leveraging Business in a Box for your Convertible Note Agreement template provides a professional, straightforward path to securing the financing your business needs, under terms that are clear, fair, and designed to support your company's growth trajectory.\u003C/p>\n\u003Cp>Updated in April 2024\u003C/p>\n",[25,16,19],{"label":26,"url":27},"Templates","/templates/",[29,30,31],{"label":26,"url":27},{"label":17,"url":18},{"label":32,"url":33},"Equity & Mergers","/templates/equity-and-mergers/",[35,39,43,47,51,55,59,63,67,71,75,79,83,101,118,133,148,163],{"label":36,"url":37,"thumb":38,"extension":10},"Security Agreement and Promissory Note","/template/security-agreement-and-promissory-note-D912","https://templates.business-in-a-box.com/imgs/250px/912.png",{"label":40,"url":41,"thumb":42,"extension":10},"Note Purchase Agreement","/template/note-purchase-agreement-D433","https://templates.business-in-a-box.com/imgs/250px/433.png",{"label":44,"url":45,"thumb":46,"extension":10},"Convertible Debenture","/template/convertible-debenture-D464","https://templates.business-in-a-box.com/imgs/250px/464.png",{"label":48,"url":49,"thumb":50,"extension":10},"Participating and Convertible Debenture","/template/participating-and-convertible-debenture-D5167","https://templates.business-in-a-box.com/imgs/250px/5167.png",{"label":52,"url":53,"thumb":54,"extension":10},"Secured Lumpsum Promissory Note Agreement","/template/secured-lumpsum-promissory-note-agreement-D13041","https://templates.business-in-a-box.com/imgs/250px/13041.png",{"label":56,"url":57,"thumb":58,"extension":10},"Mortgage Note","/template/mortgage-note-D1182","https://templates.business-in-a-box.com/imgs/250px/1182.png",{"label":60,"url":61,"thumb":62,"extension":10},"Balloon Note","/template/balloon-note-D426","https://templates.business-in-a-box.com/imgs/250px/426.png",{"label":64,"url":65,"thumb":66,"extension":10},"Demand Note","/template/demand-note-D429","https://templates.business-in-a-box.com/imgs/250px/429.png",{"label":68,"url":69,"thumb":70,"extension":10},"Promissory Note","/template/promissory-note-D434","https://templates.business-in-a-box.com/imgs/250px/434.png",{"label":72,"url":73,"thumb":74,"extension":10},"Renewed Note","/template/renewed-note-D438","https://templates.business-in-a-box.com/imgs/250px/438.png",{"label":76,"url":77,"thumb":78,"extension":10},"Time Note","/template/time-note-D441","https://templates.business-in-a-box.com/imgs/250px/441.png",{"label":80,"url":81,"thumb":82,"extension":10},"Guarantee of Claim Promissory Note","/template/guarantee-of-claim-promissory-note-D884","https://templates.business-in-a-box.com/imgs/250px/884.png",{"description":84,"descriptionCustom":6,"label":85,"pages":86,"size":87,"extension":10,"preview":88,"thumb":89,"svgFrame":90,"seoMetadata":91,"parents":92,"keywords":99,"url":100},"TERM SHEET Issue: [Venture Capital FIRM] (\"VC\") and/or any member of its corporate group (\"the VC Group\") will purchase up to [AMOUNT] Series A Convertible Preferred Stock (\"Series A\") newly issued by [YOUR COMPANY NAME] (the \"Company\") at a price per share of [PRICE] (the \"Purchase Price\"). In addition, other investors shall purchase at least [AMOUNT] but not more than [AMOUNT] of newly issued Series A at the Purchase Price. The shares of Series A will be convertible at any time at the option of the holder into common shares of the Company (\"Common Stock\") on a one-for-one basis, adjusted for future share splits. The Purchase Price equates to a pre-money valuation of [VALUATION]. The calculation is based on [NUMBER] fully diluted shares of Common Stock. If the number of shares issued, or stock awards/options authorized increases before the closing the price per share for Series A Convertible Preferred Stock shall be reduced so that the pre-money valuation is unchanged. The Series A Convertible Preferred Stock shall be referred to herein as the \"Preferred Stock.\" Dividend: The Preferred Stock is entitled to an annual [AMOUNT] per share dividend, payable when and if declared by the Board of Directors, but prior to any payment on Common Stock; dividends are not cumulative. Liquidation Preference: The Series A will have a liquidation preference so that proceeds on a merger, sale or liquidation (including non-cumulative dividends) will first be paid to the Series A and will include a [%] per annum compounding guaranteed return calculated on the total amount invested. Upon completion of an additional round of funding of at least [AMOUNT] the compounding guaranteed return feature will expire. The liquidation preference will cease to operate if the proceeds due to Series A, on a merger, sale or liquidation on an as-converted basis, exceed the proceeds that would be due under the liquidation preference. Use of Proceeds: The funds raised by Series A will be used principally for general working capital purposes. Voting Rights: The holders of the Series A shall have the right to vote with the Common Stock on an as-if-converted basis. Redemption: If not previously converted, the Series A is to be redeemed in three equal successive annual installments beginning [DATE]. Redemption will be at the purchase price plus a [%] per annum cumulative guaranteed return. Pre-emptive Rights: Holders of the Preferred Stock will be granted rights to participate in future equity financings of the Company based upon their pro-rata, as-if-converted, ownership of the Company. Automatic Conversion: The Preferred Stock shall be automatically converted into Common Stock at the then applicable conversion rate (1:1 assuming no share splits) in the event of an underwritten public offering of shares of the Company at a total offering of not less than [AMOUNT] and at a per share public offering price of not less than three times the Series A purchase price per share, adjusted for splits. Anti-Dilution: Series A shall have weighted average anti-dilution, based on a weighted average formula to be agreed, for all securities purchased as part of this transaction (excluding shares, options and warrants issued for management incentive and small issues for strategic purposes of under [NUMBER] shares). Management Options: Simultaneously with this transaction, one million new shares shall expand the Company's management incentive stock option pool - bringing the total number of shares issued and stock incentives (awards and options) authorized to [NUMBER OF SHARES]. Rights of First Offer; Tag-Along: The Company and the Investors will have a right of first refusal with respect to any employee's shares proposed to be resold. Alternatively, the Investors will have the right to participate in the sale of any such shares to a third party (co-sale rights), which rights will terminate upon a public offering. Information Rights: Monthly actual vs. plan and prior year. Annual budget [NUMBER] days before beginning of fiscal year","Term Sheet","3",42,"https://templates.business-in-a-box.com/imgs/1000px/term-sheet-D473.png","https://templates.business-in-a-box.com/imgs/250px/473.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#473.xml",{"title":6,"description":6},[93,96],{"label":94,"url":95},"Finance & Accounting","finance-accounting",{"label":97,"url":98},"Raising Capital","raising-capital","term sheet","/template/term-sheet-D473",{"description":102,"descriptionCustom":6,"label":103,"pages":104,"size":105,"extension":10,"preview":106,"thumb":107,"svgFrame":108,"seoMetadata":109,"parents":111,"keywords":110,"url":117},"LOAN AGREEMENT This Loan Agreement (\"Agreement\") is made and effective the [DATE], BETWEEN: [LENDER NAME] (the \"Lender\"), an individual with his main address located at OR a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] AND: [YOUR COMPANY NAME] (the \"Borrower\"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [YOUR COMPLETE ADDRESS] Promise to Pay Within [NUMBER] months from today, Borrower promises to pay to Lender the sum of [AMOUNT], and interest and other charges stated below. Responsibility Although this Agreement may be signed below by more than one person, Borrower understands that both parties are individuals responsible for paying back the full amount. Breakdown of Loan Amount of Loan: Other (Describe): Amount Financed: Finance Charge: Total of Payments: Annual Rate: Repayment Borrower will repay the amount of this note in [NUMBER] equal uninterrupted monthly installments of [AMOUNT] each on the [DAY] of each month starting on the [DATE], and ending on [DATE]. Prepayment Borrower has the right to prepay the whole outstanding amount at any time","Loan Agreement","2",513,"https://templates.business-in-a-box.com/imgs/1000px/loan-agreement-D417.png","https://templates.business-in-a-box.com/imgs/250px/417.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#417.xml",{"title":110,"description":6},"loan agreement",[112,113,116],{"label":94,"url":95},{"label":114,"url":115},"Business Loans","business-loan",{"label":114,"url":115},"/template/loan-agreement-D417",{"description":119,"descriptionCustom":6,"label":120,"pages":86,"size":105,"extension":10,"preview":121,"thumb":122,"svgFrame":123,"seoMetadata":124,"parents":126,"keywords":125,"url":132},"NON-DISCLOSURE AGREEMENT (NDA) This Non-Disclosure Agreement (the \"Agreement\") is made and effective [DATE], BETWEEN: [YOUR COMPANY NAME] (the \"Disclosing Party\"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [YOUR COMPLETE ADDRESS] AND: [RECEIVING PARTY NAME] (the \"Receiving Party\"), an individual with his main address located at OR a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] WHEREAS, Receiving Party has been or will be engaged in the performance of work on [DESCRIBE]; and in connection therewith will be given access to certain confidential and proprietary information; and WHEREAS, Receiving Party and Disclosing Party wish to evidence by this Agreement the manner in which said confidential and proprietary material will be treated. NOW, THEREFORE, it is agreed as follows: NON-DISCLOSURE OF CONFIDENTIAL INFORMATION Both Parties understand and agree that each Party may have access to the confidential information of the other party. For the purposes of this Agreement, \"Confidential Information\" means proprietary and confidential information about the Disclosing Party's (or it's suppliers') business or activities. Such information includes all business, financial, technical, and other information marked or designated by such Party as \"confidential\" or \"proprietary.\" Confidential Information also includes information which, by the nature of the circumstances surrounding the disclosure, ought in good faith to be treated as confidential. For the purposes of this Agreement, Confidential Information does not include: Information that is currently in the public domain or that enters the public domain after the signing of this Agreement. Information a Party lawfully receives from a third Party without restriction on disclosure and without breach of a non-disclosure obligation. Information that the Receiving Party knew prior to receiving any Confidential Information from the Disclosing Party. Information that the Receiving Party independently develops without reliance on any Confidential Information from the Disclosing Party. Each Party agrees that it will not disclose to any third Party or use any Confidential Information disclosed to it by the other Party except when expressly permitted in writing by the other Party. Each Party also agrees that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other Party in its possession or control. TERM The term of this Agreement is [number] of [years/months] from the date of execution by both Parties. TITLE The Receiving Party agrees that all Confidential Information furnished by the Disclosing Party shall remain the sole property of the Disclosing Party. DISCLAIMER","Non Disclosure Agreement Nda","https://templates.business-in-a-box.com/imgs/1000px/non-disclosure-agreement-nda-D12692.png","https://templates.business-in-a-box.com/imgs/250px/12692.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#12692.xml",{"title":125,"description":6},"non disclosure agreement nda",[127,129],{"label":17,"url":128},"business-legal-agreements",{"label":130,"url":131},"Confidentiality Agreements","confidentiality-agreement","/template/non-disclosure-agreement-nda-D12692",{"description":134,"descriptionCustom":6,"label":135,"pages":136,"size":105,"extension":10,"preview":137,"thumb":138,"svgFrame":139,"seoMetadata":140,"parents":142,"keywords":141,"url":147},"SHAREHOLDERS AGREEMENT This Shareholders Agreement (the \"Agreement\") is made and effective [DATE], BETWEEN: [YOUR COMPANY NAME] (the \"Company\"), a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [YOUR COMPLETE ADDRESS] AND: [FIRST SHAREHOLDER NAME] (the \"First Shareholder\"), an individual with his main address located at OR a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] AND: [SECOND SHAREHOLDER NAME] (the \"Second Shareholder\"), an individual with his main address located at OR a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] AND: [THIRD SHAREHOLDER NAME] (the \"Third Shareholder\"), an individual with his main address located at OR a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] WITNESSETH: WHEREAS, the present distribution of shares of the Company is as follows: Name Number of Shares WHEREAS, in order to insure the harmonious and successful management and control of the Company, and to provide for an orderly and fair disposition of shares of common stock of the Company now or hereafter owned by any Shareholder; NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and intending to be legally bound, the parties hereby agree as follows: Definitions and organisation of the company \"Offering Shareholder\" means any Shareholder, or his personal representatives, heirs, administrators, and executors, as the case may be, who pursuant to this Agreement must or does offer all or any of his Shares to the Company or the Continuing Shareholders. \"Continuing Shareholders\" means all Shareholders other than an Offering Shareholder. \"Shares\" means shares of Common Stock of the Company now or hereafter owned by any Shareholder. \"Buyer\" means the Company or those Continuing Shareholders who purchase an Offering Shareholder's Shares pursuant to this Agreement. \"Management Shareholder\" means First Shareholder, Second Shareholder and Third Shareholder. ORGANISATION OF THE COMPANY The affairs of the Company will be managed by a board of [NUMBER] directors unless changed by a unanimous Directors' Resolution. The present directors of the Company are [DIRECTORS' NAMES]. It is agreed that [SHAREHOLDERS' NAMES] shall each be entitled to elect one director to the board of directors of the Company so long as each is a Shareholder. Two (2) directors shall constitute a quorum for the transaction of any business at any meeting of the board of directors. At all meetings of the board of directors, every motion to be carried must receive a majority of the votes cast, subject to the provisions of subparagraphs 2.4 and 2.5. Unless otherwise agreed, board meetings will be held at the head office of the Company. In the event that a nominee to the Board of one of the Shareholders shall fail to vote and act as a director to carry out the provisions of this agreement, then the shareholders agree to exercise their right as shareholders of the Company and in accordance with the Articles of the Company to remove such nominee from the Board and to elect in the place or stead thereof such individual who will use his/her best efforts to carry out the provisions of this agreement but only in the event that the Shareholder whose nominee has been removed fails to appoint a successor within a period of fourteen days from the date such nominee has been removed. The election, appointment and determination of officers and the auditors and advisors of the Company, the defining of their duties and functions and the salaries and remuneration to be paid to them will be a function of the board of directors. Until changed by the board of directors, the Officers of the Company and their annual salaries shall be: Office Held: Director: [NAME] [SALARY] Secretary: [NAME] [SALARY] All direct out-of-pocket expenses will be reimbursed provided these falls within guidelines set out by the Board of Directors from time to time. Until otherwise agreed, each officer of the Company will commit to spending his/her full time on the affairs of the Company. Until changed by the board of directors, the auditors and advisors of the Company shall be: Auditor: Legal Advisors: There shall be kept, in such bank or banks (including trust companies) as may be determined by the board of directors, bank accounts of the Company in which shall be deposited all monies received by the Company in the course of carrying on business from time to time. All payments on account of the Company shall be made by cheques drawn on the bank account and all cheques, drafts or other instruments drawn and made for the purposes of the business of the Company shall be executed by such directors, officers or employees as may from time to time be authorized so to do by the board of directors. Subject to paragraph 2.6, all decisions relating to the management and control of the business of the Company shall be determined by the board of directors of the Company, provided always that the following matters shall be determined by a Special Directors' Resolution: any capital expenditures greater than xxxx; any lease commitments greater than xxxx; the acquisition of any business interests by the Company; the elections of officers of the Company; the payment of any cash dividends or stock dividends to Shareholders of the Company; the issuance of any debt obligations of the Company; the disposal of the whole or any part of the business, undertaking, or assets of the Company outside the normal course of business of the Company the transfer of any shares of the Company; changes or variations in the objects or powers of the Company; the liquidation or winding up of the Company; the approval of any contracts or transactions outside the normal course of business; the execution of any contract involving a consideration greater than xxxx within the normal course of business; the lending of money by the Company; the guarantee by the Company of the debts or obligations of any other person, firm or body corporate; any non-budgeted expenditures greater than xxxx; business plan and/or budgets. The following decisions shall be determined by a Unanimous Directors' Resolution: alterations, variations or changes to the authorized or issued capital of the Company; the salaries and bonuses of officers and directors of the Company; the issue, redemption or purchase of any Shares; and changes in the number of directors of the Company The Shareholders may pledge any of their Shares as security for any borrowings by them provided the pledgee executes an agreement, in writing, providing that the pledgee shall be subject to all of the terms of this Agreement. The board of directors shall meet at least four times during each fiscal year of the Company. Any director can call a meeting provided 10 days notice is given. Notice may be waived. During the first year from the date of this agreement, the board of directors shall meet on a monthly basis. Directors may elect to attend a board meeting by telephone conference call. Each Shareholder shall, for so long as s/he is the owner of shares of the Company devote such of his/her business, time and energy as may be reasonably required to carry on the business of the Company and the Shareholder shall use his/her best efforts, skill and abilities to promote the interests of the Company. Each Shareholder agrees that he/she will not engage, without the consent of the other Shareholders, in a business which is directly competitive to that of the Company. Purchase for Investment","Shareholders Agreement","16","https://templates.business-in-a-box.com/imgs/1000px/shareholders-agreement-D1016.png","https://templates.business-in-a-box.com/imgs/250px/1016.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#1016.xml",{"title":141,"description":6},"shareholders agreement",[143,144],{"label":17,"url":128},{"label":145,"url":146},"Incorporation Agreements","incorporation-agreement","/template/shareholders-agreement-D1016",{"description":149,"descriptionCustom":6,"label":150,"pages":151,"size":87,"extension":10,"preview":152,"thumb":153,"svgFrame":154,"seoMetadata":155,"parents":156,"keywords":161,"url":162},"STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the \"Agreement\") is made and effective [DATE] BETWEEN: [YOUR COMPANY NAME] (the \"Seller\"), a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [YOUR COMPLETE ADDRESS] AND: [PURCHASER NAME] (the \"Purchaser\"), an individual with his main address located at OR a company organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at: [COMPLETE ADDRESS] RECITALS WHEREAS, the Seller is the record owner and holder of the issued and outstanding shares of the capital stock of the Company, a [STATE/PROVINCE] company, which Company has issued capital stock of [NUMBER] shares of [AMOUNT] par value common stock; and WHEREAS, the Purchaser desires to purchase said stock and the Seller desires to sell said stock, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and in order to consummate the purchase and the sale of the Company's Stock aforementioned, it is hereby agreed as follows: PURCHASE AND SALE Subject to the terms and conditions hereinafter set forth, at the closing of the transaction contemplated hereby, the Seller shall sell, convey, transfer, and deliver to the Purchaser certificates representing such stock, and the Purchaser shall purchase from the Seller the Company's Stock in consideration of the purchase price set forth in this Agreement. The certificates representing the Company's Stock shall be duly endorsed for transfer or accompanied by appropriate stock transfer powers duly executed in blank, in either case with signatures guaranteed in the customary fashion, and shall have all the necessary documentary transfer tax stamps affixed thereto at the expense of the Seller. The closing of the transactions contemplated by this Agreement (\"Closing\"), shall be held at [ADDRESS], on [DATE], at [TIME], or such other place, date and time as the parties hereto may otherwise agree. AMOUNT AND PAYMENT OF PURCHASE PRICE The total consideration and method of payment thereof are fully set out in Exhibit \"A\" attached hereto and made a part hereof. REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby warrants and represents: Organization and Standing. Company is a company duly organized, validly existing and in good standing under the laws of the [State/Province] of [STATE/PROVINCE] and has the corporate power and authority to carry on its business as it is now being conducted. Restrictions on Stock:","Stock Purchase Agreement","4","https://templates.business-in-a-box.com/imgs/1000px/stock-purchase-agreement-D349.png","https://templates.business-in-a-box.com/imgs/250px/349.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#349.xml",{"title":6,"description":6},[157,158],{"label":94,"url":95},{"label":159,"url":160},"Buy & Sell Shares","buy-sell-shares","stock purchase agreement","/template/stock-purchase-agreement-D349",{"description":164,"descriptionCustom":6,"label":165,"pages":166,"size":105,"extension":10,"preview":167,"thumb":168,"svgFrame":169,"seoMetadata":170,"parents":172,"keywords":171,"url":175},"Investment Proposal [Your Company Name] Address City Postal Code Phone 555.555.5555 Email info@yourbusiness.com www.yourbusiness.com Table of Contents Statement of Confidentiality 4 1. Executive Summary 5 1.1 Purpose of the Proposal 5 1.2 Business Overview 5 1.3 Funding Requirements 5 2. Business Description 6 2.1 Company Background 6 2.2 Business Objectives 6 2.3 Unique Selling Proposition (USP) 6 3. Market Analysis 7 3.1 Industry Overview 7 3.2 Target Market 7 3.3 Competitive Analysis 7 4. Products and Services 8 4.1 Product/Service Overview 8 4.2 Development Stage 8 5. Marketing and Sales Strategy 9 5.1 Marketing Strategy 9 5.2 Sales Strategy 9 5.3 Distribution Channels 9 6. Operational Plan 10 6.1 Production Process 10 6.2 Facilities 10 6.3 Suppliers and Partners 10 7. Management Team 11 7.1 Team Overview 11 7.2 Roles and Responsibilities 11 8. Financial Plan 12 8.1 Financial Projections 12 8.2 Break-even Analysis 12 9. Investment Offer 13 9.1 Investment Requirement 13 9.2 Use of Funds 13 9.3 Equity Offer 13 9.4 Exit Strategy 13 10. Conclusion 14 11. Appendices 15 11.1 Supporting Documents 15 Statement of Confidentiality & Non-Disclosure This document contains proprietary and confidential information. All data submitted to [RECEIVING PARTY] is provided in reliance upon its consent not to use or disclose any information contained herein except in the context of its business dealings with [YOUR COMPANY NAME]. The recipient of this document agrees to inform present and future employees of [RECEIVING PARTY] who view or have access to its content of its confidential nature. The recipient agrees to instruct each employee that they must not disclose any information concerning this document to others except to the extent that such matters are generally known to, and are available for use by, the public. The recipient also agrees not to duplicate or distribute or permit others to duplicate or distribute any material contained herein without [YOUR COMPANY NAME]'s express written consent. [YOUR COMPANY NAME] retains all title, ownership and intellectual property rights to the material and trademarks contained herein, including all supporting documentation, files, marketing material, and multimedia. BY ACCEPTANCE OF THIS DOCUMENT, THE RECIPIENT AGREES TO BE BOUND BY THE AFOREMENTIONED STATEMENT. Executive Summary 1.1 Purpose of the Proposal Briefly describe the purpose of this investment proposal and what you hope to achieve with the funding. 1.2 Business Overview Provide a snapshot of your business, including the core mission and goals. 1.3 Funding Requirements Specify the amount of funding needed and a high-level allocation of funds. Business Description 2.1 Company Background Outline the history and evolution of your business. 2.2 Business Objectives Detail the objectives your business intends to achieve. 2.3 Unique Selling Proposition (USP) Highlight what makes your business stand out in the market. Market Analysis 3.1 Industry Overview Discuss the current state of the industry and future growth prospects. 3.2 Target Market Define who your customers are and their key characteristics. 3","Investment Proposal","15","https://templates.business-in-a-box.com/imgs/1000px/investment-proposal-D13992.png","https://templates.business-in-a-box.com/imgs/250px/13992.png","https://templates.business-in-a-box.com/svgs/docviewerWebApp1.html?v6#13992.xml",{"title":171,"description":6},"investment proposal",[173,174],{"label":17,"url":128},{"label":17,"url":128},"/template/investment-proposal-D13992",true,{"seo":178,"reviewer":190,"legal_disclaimer":176,"quick_facts":194,"at_a_glance":197,"personas":201,"variants":226,"glossary":254,"clauses":288,"how_to_fill":339,"common_mistakes":380,"faqs":405,"industries":436,"comparisons":453,"diy_vs_lawyer":466,"jurisdictions":479,"related_template_ids_curated":500,"schema":510,"classification":511},{"meta_title":179,"meta_description":180,"primary_keyword":181,"secondary_keywords":182},"Convertible Note Agreement Template | Free Word Download","Free convertible note agreement template for startup seed funding. Download now and secure investor agreements.","convertible note agreement template",[183,20,184,185,186,187,188,189],"convertible note template","seed funding convertible note","startup convertible note template","convertible note term sheet","safe note vs convertible note","convertible debt agreement template","convertible note word template free",{"name":191,"credential":192,"reviewed_date":193},"Bruno Goulet","CEO, Business in a Box","2026-05-02",{"difficulty":195,"legal_review_recommended":176,"signature_required":176,"notarization_required":196},"advanced",false,{"what_it_is":198,"when_you_need_it":199,"whats_inside":200},"A Convertible Note Agreement is a legally binding debt instrument that lets a startup borrow money from an investor with the understanding that the loan will convert into equity — typically preferred stock — at a future financing round rather than being repaid in cash. This free Word download covers all standard terms, including principal, interest rate, maturity date, discount rate, valuation cap, and conversion mechanics, in a single editable document you can export as PDF and execute with investors at the seed or pre-seed stage.\n","Use it when raising a seed or bridge round from angel investors or early-stage VCs before your company has a priced valuation, or when you need to close capital quickly without the cost and time of a full equity round. It is also appropriate when existing investors want to extend runway between priced rounds via a bridge note.\n","Principal amount, interest rate and accrual mechanics, maturity date and repayment terms, discount rate on conversion, valuation cap, qualified financing threshold, automatic and optional conversion triggers, change-of-control provisions, representations and warranties, and governing law.\n",[202,206,210,214,218,222],{"title":203,"use_case":204,"icon_asset_id":205},"Pre-seed and seed-stage founders","Closing angel investment quickly before a priced equity round is feasible","persona-startup-founder",{"title":207,"use_case":208,"icon_asset_id":209},"Angel investors","Deploying capital into early-stage companies with deferred valuation risk","persona-angel-investor",{"title":211,"use_case":212,"icon_asset_id":213},"Startup attorneys","Drafting and reviewing convertible instruments on behalf of issuer or investor clients","persona-attorney",{"title":215,"use_case":216,"icon_asset_id":217},"Accelerator program managers","Issuing standardized notes to cohort companies as part of program investment terms","persona-accelerator-manager",{"title":219,"use_case":220,"icon_asset_id":221},"CFOs and finance directors","Structuring bridge financing between Series A and Series B rounds","persona-cfo",{"title":223,"use_case":224,"icon_asset_id":225},"Small business owners","Raising informal capital from friends, family, or local investors with clear repayment or conversion terms","persona-small-business-owner",[227,231,235,238,242,246,250],{"situation":228,"recommended_template":229,"slug":230},"Raising a pre-seed round from angels with a target valuation cap","Convertible Note Agreement (Standard)","convertible-note-agreement-D870",{"situation":232,"recommended_template":233,"slug":234},"Using a simpler, non-debt instrument with no maturity date or interest","SAFE (Simple Agreement for Future Equity)","simple-agreement-for-future-equity-safe-D13395",{"situation":236,"recommended_template":150,"slug":237},"Issuing equity directly in a priced seed round","stock-purchase-agreement-D349",{"situation":239,"recommended_template":240,"slug":241},"Bridging existing investors between Series A and Series B","Bridge Loan Agreement","loan-agreement-D417",{"situation":243,"recommended_template":244,"slug":245},"Investing in a company via revenue-based repayment rather than equity","Revenue-Based Financing Agreement","financing-agreement-D877",{"situation":247,"recommended_template":248,"slug":249},"Documenting angel investment terms before the full note is drafted","Term Sheet (Seed Round)","term-sheet-for-series-a-round-of-financing-D472",{"situation":251,"recommended_template":252,"slug":253},"Structuring a group of investors into a single entity before issuing a note","Investor Syndicate Agreement","shareholders-agreement-D1016",[255,258,261,264,267,270,273,276,279,282,285],{"term":256,"definition":257},"Convertible Note","A short-term debt instrument that converts into equity at a future financing round rather than being repaid in cash.",{"term":259,"definition":260},"Principal","The original loan amount the investor provides to the company under the note.",{"term":262,"definition":263},"Valuation Cap","The maximum company valuation at which the note will convert into equity, giving early investors a lower price per share than later investors in the same round.",{"term":265,"definition":266},"Discount Rate","A percentage reduction on the price per share at conversion, rewarding the noteholder for investing earlier than equity investors — typically 10–25%.",{"term":268,"definition":269},"Qualified Financing","A future equity financing that meets a minimum size threshold defined in the note, triggering automatic conversion of the outstanding principal and accrued interest.",{"term":271,"definition":272},"Maturity Date","The date by which the note must convert, be repaid, or be renegotiated if a qualified financing has not occurred.",{"term":274,"definition":275},"Accrued Interest","Interest that accumulates on the principal over time and is typically added to the conversion amount rather than paid in cash.",{"term":277,"definition":278},"Pre-Money Valuation","The company's agreed value immediately before a new investment round, used as the basis for calculating price per share at conversion.",{"term":280,"definition":281},"Pro Rata Rights","A noteholder's contractual right to invest in subsequent financing rounds in proportion to their existing ownership, preventing dilution.",{"term":283,"definition":284},"Change of Control","A transaction in which ownership or control of the company shifts — typically a merger, acquisition, or asset sale — that may trigger early repayment or conversion.",{"term":286,"definition":287},"SAFE","Simple Agreement for Future Equity — a non-debt alternative to a convertible note that also defers valuation, but carries no interest rate or maturity date.",[289,294,299,304,309,314,319,324,329,334],{"name":290,"plain_english":291,"sample_language":292,"common_mistake":293},"Parties, principal amount, and issuance date","Identifies the company and the investor as legal entities, states the exact dollar amount being lent, and records the date the note is issued.","This Convertible Promissory Note is issued as of [DATE] by [COMPANY LEGAL NAME], a [STATE] [ENTITY TYPE] ('Company'), to [INVESTOR LEGAL NAME OR ENTITY] ('Holder') in the principal amount of $[AMOUNT].","Using a founder's personal name instead of the registered corporate entity as the issuer. If the company and issuer don't match, the note may be treated as personal debt rather than a corporate obligation.",{"name":295,"plain_english":296,"sample_language":297,"common_mistake":298},"Interest rate and accrual","States the annual interest rate, how interest accrues (simple or compound), and whether it is paid in cash or added to the conversion amount.","This Note shall bear interest at a rate of [X]% per annum, accruing daily on the basis of a 365-day year, compounding annually. Accrued interest shall not be paid in cash but shall be added to the outstanding principal for purposes of conversion.","Setting interest too high or too low without checking IRS Applicable Federal Rate (AFR) minimums. Notes below the AFR floor are treated as having imputed interest, creating unexpected tax consequences for both parties.",{"name":300,"plain_english":301,"sample_language":302,"common_mistake":303},"Maturity date and repayment","Sets the date the note expires if a qualified financing hasn't occurred, and states what happens — repayment in cash or optional conversion at the investor's election.","Unless earlier converted or repaid, the outstanding principal and accrued interest shall be due and payable on [DATE] ('Maturity Date'). At maturity, at the Holder's election, the Note may be (a) repaid in full in cash, or (b) converted into [shares / equity] at a price per share equal to [FORMULA].","Setting a maturity date that is too short — typically under 18 months — without a realistic path to a qualified financing by that date. A premature maturity forces renegotiation or creates a technical default.",{"name":305,"plain_english":306,"sample_language":307,"common_mistake":308},"Valuation cap","Sets the maximum company valuation at which the note converts into equity, ensuring early investors receive a better price per share than later-round investors regardless of how high the valuation grows.","Notwithstanding the conversion price applicable to the Qualified Financing, the price per share used to convert this Note shall not exceed the price derived by dividing the Valuation Cap of $[CAP AMOUNT] by the Company's fully diluted capitalization immediately prior to such financing.","Omitting the valuation cap entirely and relying only on a discount rate. Without a cap, a high-valuation Series A can result in the noteholder receiving a negligible ownership stake relative to their investment risk.",{"name":310,"plain_english":311,"sample_language":312,"common_mistake":313},"Discount rate","Gives the noteholder a percentage reduction off the price per share paid by new investors at the qualified financing, rewarding them for their earlier, higher-risk capital.","In the event of a Qualified Financing, the Note shall convert at a price per share equal to [X]% of the price per share paid by new investors in such financing (i.e., a [Y]% discount). If a Valuation Cap also applies, the Holder shall receive whichever calculation results in a lower conversion price.","Applying the discount to the post-money valuation rather than the price per share paid by new investors. The discount should apply to the new-money price, not the company's aggregate post-round value.",{"name":315,"plain_english":316,"sample_language":317,"common_mistake":318},"Qualified financing threshold","Defines the minimum size and type of future equity raise that will automatically trigger conversion of the note, preventing conversion into a small or informal round.","A 'Qualified Financing' means the next sale of preferred stock (or equivalent) by the Company in a transaction or series of transactions resulting in gross proceeds of at least $[THRESHOLD AMOUNT], not including any amounts converted from outstanding convertible notes.","Setting the qualified financing threshold too low — e.g., $250,000 — so that a small friends-and-family round accidentally triggers conversion before a meaningful priced round occurs.",{"name":320,"plain_english":321,"sample_language":322,"common_mistake":323},"Conversion mechanics and optional conversion","Describes exactly how and when the note converts into shares — automatically on a qualified financing, optionally at maturity, and what class of stock the investor receives.","Upon the closing of a Qualified Financing, the outstanding principal and accrued interest shall automatically convert into shares of the same class and series sold in such financing at the applicable conversion price. The Holder shall execute any documents required to complete conversion within [5] business days of the Company's request.","Failing to specify whether the investor receives the same preferred stock class as the new lead investor or a separate shadow series. This ambiguity can delay closing of the priced round as counsel works to resolve it.",{"name":325,"plain_english":326,"sample_language":327,"common_mistake":328},"Change-of-control and acquisition","States what happens to the note if the company is acquired before a qualified financing — typically the investor can elect accelerated repayment at a premium or conversion at the cap price.","In the event of a Change of Control prior to conversion, the Holder may elect (a) repayment of the outstanding principal and accrued interest plus a [X]% acquisition premium, or (b) conversion of the Note into the Company's most senior class of equity at the Valuation Cap price immediately prior to closing.","No change-of-control clause at all. Without one, a company acquired for a modest sum may return nothing to noteholders beyond nominal par value, effectively wiping out the investment.",{"name":330,"plain_english":331,"sample_language":332,"common_mistake":333},"Representations, warranties, and covenants","Statements of fact the company makes at the time of issuance — corporate authority, no conflicting obligations, valid issuance — and any ongoing obligations like information rights.","The Company represents that it is duly organized and in good standing under the laws of [STATE], that the issuance of this Note has been duly authorized, and that it does not conflict with any existing agreement. The Company shall provide the Holder with annual unaudited financial statements within [90] days of each fiscal year end.","Granting broad information rights without carving out commercially sensitive data. Investors holding notes alongside a competitor's fund can inadvertently gain access to pricing, customer, or product roadmap data.",{"name":335,"plain_english":336,"sample_language":337,"common_mistake":338},"Governing law, amendments, and entire agreement","Specifies which jurisdiction's law governs the note, how amendments must be made (typically in writing with both parties' signatures), and confirms the note supersedes all prior discussions.","This Note shall be governed by the laws of the State of [STATE], without regard to conflict-of-laws principles. This Note may not be amended without the written consent of the Company and a majority in interest of the outstanding principal. This Note constitutes the entire agreement between the parties with respect to its subject matter.","Allowing amendments by a simple majority of noteholders without requiring company consent. This can let a group of investors unilaterally modify material terms — such as the maturity date or conversion price — against the company's interests.",[340,345,350,355,360,365,370,375],{"step":341,"title":342,"description":343,"tip":344},1,"Enter the company and investor legal details","Use the company's full registered legal name — not a trade name — and the investor's legal name or entity name exactly as it appears on their formation documents. Include state of incorporation and entity type for both parties.","Ask your investor to confirm the exact legal entity name they want on the note before drafting. Correcting this after signatures requires a formal amendment.",{"step":346,"title":347,"description":348,"tip":349},2,"Set the principal amount and issuance date","Enter the exact dollar amount being invested and the date the note will be executed. If the investment is being funded in tranches, note that here and attach a funding schedule as an exhibit.","If multiple investors are participating, issue a separate note to each rather than listing all investors on one instrument. Co-investor notes create amendment and consent complications later.",{"step":351,"title":352,"description":353,"tip":354},3,"Define the interest rate and accrual method","Set the annual interest rate — typically 4–8% for seed notes — and confirm whether it accrues as simple or compound interest. State explicitly that accrued interest converts alongside principal rather than being paid in cash.","Check the current IRS Applicable Federal Rate (AFR) before finalizing the rate. For 2024–2025, the short-term AFR is approximately 4–5%. Setting the note rate below AFR triggers imputed interest rules.",{"step":356,"title":357,"description":358,"tip":359},4,"Set the valuation cap and discount rate","Enter the valuation cap — the maximum pre-money valuation at which the note converts — and the discount rate (typically 10–25%). Include language stating the investor receives whichever calculation produces the lower conversion price.","A valuation cap of 1.5–2× your anticipated Series A valuation is a common negotiation anchor. Cap too low and you give away too much equity; cap too high and the note loses its investor incentive.",{"step":361,"title":362,"description":363,"tip":364},5,"Define the qualified financing threshold","Set the minimum equity raise size — typically $500,000 to $1,500,000 for seed-stage companies — that will trigger automatic conversion. Confirm this amount excludes the note proceeds themselves from the calculation.","Align the threshold with your planned Series A or next priced round size, not your current raise. Setting it too low creates conversion risk in unintended small rounds.",{"step":366,"title":367,"description":368,"tip":369},6,"Set the maturity date and repayment terms","Enter a maturity date 18–24 months from issuance — enough time to reach a priced round. State clearly whether the investor can demand cash repayment at maturity or must accept conversion. Include an optional conversion right for the investor at maturity.","Build in an extension option — e.g., a 6-month extension at the company's election — so that a delayed financing round doesn't trigger a technical default.",{"step":371,"title":372,"description":373,"tip":374},7,"Add the change-of-control provision","Specify what the investor receives in an acquisition — cash repayment at a premium (e.g., 1.5× principal), or conversion at the cap price. This clause protects investors from receiving nothing in a low-value exit.","Negotiate the acquisition premium at the same time as the cap and discount — investors view all three as a package and will trade between them.",{"step":376,"title":377,"description":378,"tip":379},8,"Execute before funds are transferred","Both parties must sign the note before or on the same day the investment amount is wired. Obtain a board or written consent authorizing the note issuance from the company, and file the note in your capitalization records.","Use a cap table management tool to record the note immediately — including the principal, cap, and discount — so it is reflected in your fully diluted share count for future financing discussions.",[381,385,389,393,397,401],{"mistake":382,"why_it_matters":383,"fix":384},"No valuation cap and no discount rate","Without either mechanism, the noteholder converts at the same price as the new lead investor, receiving no benefit for taking on earlier, higher-risk capital. This is effectively a zero-return loan on the upside.","Include at minimum a discount rate of 15–20% and ideally a valuation cap. Combine them with 'lower of the two' language so the investor always benefits from whichever is more favorable.",{"mistake":386,"why_it_matters":387,"fix":388},"Setting the maturity date too short","A 12-month maturity on a pre-seed note often expires before the company reaches a priced round, forcing renegotiation under time pressure or creating a technical default that damages investor relationships.","Set the maturity at 18–24 months and include a 6-month extension option the company can exercise unilaterally by written notice, avoiding the need to renegotiate.",{"mistake":390,"why_it_matters":391,"fix":392},"Omitting the change-of-control clause","If the company is acquired for a modest sum before a financing round, noteholders may receive only their principal back — or less — with no participation in the upside that justified the risk.","Add a change-of-control clause granting noteholders the right to receive either a cash premium (1.25–2× principal) or conversion at the cap price, whichever is more favorable.",{"mistake":394,"why_it_matters":395,"fix":396},"Issuing one note to multiple co-investors","A single note with multiple holders requires unanimous or majority consent for any amendment, and creates complications when investors have different wire amounts, conversion dates, or negotiated terms.","Issue a separate, individually executed note to each investor with the specific principal amount for their investment. This keeps each relationship clean and independently administrable.",{"mistake":398,"why_it_matters":399,"fix":400},"Failing to obtain board authorization before issuance","Issuing debt without proper corporate authorization — typically a board resolution or written consent — can make the note voidable and creates a securities law compliance problem.","Pass a board resolution or written consent authorizing the note issuance, specifying the aggregate amount, key terms, and authorized signatory, before any note is executed.",{"mistake":402,"why_it_matters":403,"fix":404},"Using a personal name instead of a corporate entity as the issuer","A note issued in a founder's name rather than the company's legal entity name is personal debt, not corporate debt. The founder becomes personally liable for repayment.","Confirm the issuing entity is the registered corporation or LLC, signed by an authorized officer in their corporate capacity. The signature block should read '[Name], [Title], on behalf of [Company Legal Name].'",[406,409,412,415,418,421,424,427,430,433],{"question":407,"answer":408},"What is a convertible note agreement?","A convertible note agreement is a short-term debt instrument a startup issues to early investors in exchange for capital. Rather than being repaid in cash, the loan converts into equity — typically preferred stock — at a future financing round. It allows a startup to raise seed money quickly without needing to agree on a company valuation at the time of investment, deferring that conversation to the priced round.\n",{"question":410,"answer":411},"What is the difference between a convertible note and a SAFE?","Both instruments defer valuation to a future equity round, but a convertible note is a debt instrument — it carries an interest rate, a maturity date, and a formal repayment obligation if conversion doesn't occur. A SAFE (Simple Agreement for Future Equity) is not debt: it has no interest rate, no maturity date, and no repayment obligation. SAFEs are simpler and faster to close but offer investors less structural protection. Most institutional angels prefer notes; YC-affiliated founders often use SAFEs for their standardized terms.\n",{"question":413,"answer":414},"What is a valuation cap and why does it matter?","A valuation cap is the maximum pre-money valuation at which a convertible note will convert into equity, regardless of how high the company's Series A valuation actually is. It protects early investors from being diluted out of a meaningful ownership stake if the company's value grows significantly between the note and the priced round. For example, an investor with a $4M cap who converts in a $10M Series A receives shares priced as if the company was worth $4M — a much lower price per share than new investors pay.\n",{"question":416,"answer":417},"What interest rate should a convertible note carry?","Seed convertible notes typically carry an annual interest rate of 4–8%. The rate must equal or exceed the IRS Applicable Federal Rate (AFR) for the note's term — failing to meet this floor creates imputed interest tax consequences for both the issuer and the investor. Interest on seed notes almost always accrues and converts alongside principal rather than being paid in cash, so the practical impact on the company's cash flow is minimal until conversion.\n",{"question":419,"answer":420},"What happens if the company is acquired before the note converts?","Without a change-of-control clause, noteholders typically receive only their principal back — plus accrued interest — in a cash acquisition, with no participation in the acquisition premium. A well-drafted note includes a change-of-control provision giving investors the right to elect either a cash payout at a multiple (e.g., 1.5× principal) or conversion into equity at the valuation cap price immediately before closing, whichever produces a higher return.\n",{"question":422,"answer":423},"When does a convertible note automatically convert?","Automatic conversion is triggered when the company closes a Qualified Financing — typically an equity round meeting a minimum size threshold defined in the note, often $500,000 to $1,500,000. At that point, the outstanding principal and all accrued interest convert into shares of the same class sold in the financing, at the lower of the discount- adjusted price or the valuation-cap price. No action is required from the investor — conversion is automatic at closing.\n",{"question":425,"answer":426},"What happens if the note reaches maturity without a financing round?","At maturity, the company is technically obligated to repay the note in cash unless the note provides an alternative. Most well-drafted notes give the investor the option to either demand cash repayment or elect to convert at an agreed price — often the most recent 409A valuation or the cap price. Companies that cannot repay must renegotiate the maturity date or face a default, which can give investors the right to demand immediate repayment and potentially trigger a wind-down.\n",{"question":428,"answer":429},"Do convertible notes require SEC registration?","Convertible notes issued in private placements are typically exempt from SEC registration under Rule 506(b) of Regulation D, provided the company files a Form D within 15 days of the first sale and the investors qualify as accredited investors. The note must not be offered through general solicitation under 506(b). Companies should confirm the applicable exemption with counsel before closing any note round, as securities law violations can result in rescission rights for investors.\n",{"question":431,"answer":432},"Can a convertible note be used for friends-and-family investment?","Yes, convertible notes are commonly used for friends-and-family rounds, but securities law still applies regardless of the investor's relationship to the founder. Each investor must meet accredited investor requirements or fall under a limited non-accredited investor allowance. Even in informal rounds, using a properly drafted note — rather than a verbal agreement or email — protects both the company and the investor by documenting the agreed terms, conversion mechanics, and repayment rights.\n",{"question":434,"answer":435},"Do I need a lawyer to issue a convertible note?","For straightforward seed rounds with standard terms, a high-quality template reviewed by a startup attorney is typically sufficient and significantly reduces cost compared to a fully custom draft. Engage a lawyer directly when the raise exceeds $500,000, when institutional investors or VCs are participating with negotiated terms, when the company operates in a regulated industry, or when notes are being issued across multiple jurisdictions with differing securities laws.\n",[437,441,445,449],{"industry":438,"icon_asset_id":439,"specifics":440},"SaaS / Technology","industry-saas","Convertible notes are the dominant seed instrument in SaaS; valuation caps are set relative to ARR multiples, and pro rata rights protect early angels when Series A rounds close at high valuations.",{"industry":442,"icon_asset_id":443,"specifics":444},"Biotech / Life Sciences","industry-healthtech","Notes are used to bridge between grant funding and Series A; longer maturities of 24–36 months are standard given the extended clinical or regulatory timelines before a priced round is feasible.",{"industry":446,"icon_asset_id":447,"specifics":448},"Consumer / E-commerce","industry-ecommerce","Friends-and-family rounds in consumer startups frequently use convertible notes with lower caps and higher discounts to reflect the higher execution risk at pre-revenue stages.",{"industry":450,"icon_asset_id":451,"specifics":452},"Fintech","industry-fintech","Regulatory licensing requirements and longer go-to-market timelines mean fintech founders often need bridge notes between seed and Series A; change-of-control provisions are heavily negotiated given frequent acquisition activity.",[454,457,460,463],{"vs":233,"vs_template_id":455,"summary":456},"D{SAFE_AGREEMENT_ID}","A SAFE converts into equity at a future round using the same cap and discount mechanics as a convertible note, but it carries no interest rate, no maturity date, and no debt obligation. SAFEs are simpler and faster to close but provide investors with less structural protection. Convertible notes are preferred when investors require a maturity backstop or when the company needs the instrument classified as debt on its balance sheet.",{"vs":103,"vs_template_id":458,"summary":459},"loan-agreement-D148","A standard loan agreement is a pure debt instrument intended to be repaid in cash with interest — there is no conversion mechanism or equity component. A convertible note is also debt, but its primary intended exit is conversion into equity rather than cash repayment. Use a loan agreement for traditional financing from banks or when the lender has no interest in equity participation.",{"vs":248,"vs_template_id":461,"summary":462},"term-sheet-D13224","A term sheet is a non-binding summary of the proposed investment terms — cap, discount, maturity, and investor rights — negotiated before the formal note is drafted. The convertible note agreement is the binding legal instrument that documents and enforces those terms. A term sheet precedes the note; it does not replace it.",{"vs":150,"vs_template_id":464,"summary":465},"D{STOCK_PURCHASE_AGREEMENT_ID}","A stock purchase agreement issues equity directly to the investor at a negotiated price in a priced round, requiring agreement on a company valuation at the time of investment. A convertible note defers valuation to a later date, making it faster and cheaper to close. Once a company reaches Series A, most investors prefer the clarity of a priced round and a stock purchase agreement over continued note issuance.",{"use_template":467,"template_plus_review":471,"custom_drafted":475},{"best_for":468,"cost":469,"time":470},"Pre-seed founders raising under $250,000 from accredited angel investors on standard terms","Free","30–60 minutes per note",{"best_for":472,"cost":473,"time":474},"Seed rounds up to $500,000, notes with negotiated caps and discounts, or first-time founders","$500–$1,500 for attorney review and markup","2–5 business days",{"best_for":476,"cost":477,"time":478},"Raises over $500,000, institutional or VC participation, multi-jurisdiction issuance, or complex pro rata and information rights","$2,000–$8,000+","1–3 weeks",[480,485,490,495],{"code":481,"name":482,"flag_asset_id":483,"note":484},"us","United States","flag-us","Convertible notes are securities under federal and state law. Most issuances rely on the Regulation D Rule 506(b) exemption, requiring a Form D filing with the SEC within 15 days of the first sale and limiting participation to accredited investors. State blue sky laws vary — some states, including New York and California, require separate notice filings. Interest rates must meet or exceed the IRS Applicable Federal Rate to avoid imputed interest treatment.",{"code":486,"name":487,"flag_asset_id":488,"note":489},"ca","Canada","flag-ca","Convertible notes are regulated as securities under provincial securities legislation administered by the CSA. Most early-stage issuances rely on the accredited investor exemption or the offering memorandum exemption. Each province has its own filing requirements; Ontario, British Columbia, and Alberta have the most active startup ecosystems with established exemption frameworks. Quebec instruments must be compliant with the Autorité des marchés financiers (AMF) requirements.",{"code":491,"name":492,"flag_asset_id":493,"note":494},"uk","United Kingdom","flag-uk","Convertible notes in the UK are typically structured as convertible loan notes and are subject to FCA financial promotions rules. Most early-stage issuances rely on the high-net-worth individual or sophisticated investor exemptions under the Financial Services and Markets Act 2000. SEIS/EIS tax relief schemes are widely used for early-stage UK investment but apply to equity instruments, not convertible notes — conversion timing may affect relief eligibility.",{"code":496,"name":497,"flag_asset_id":498,"note":499},"eu","European Union","flag-eu","Convertible note structures are less standardized across EU member states than in the US or UK. Germany uses a Wandeldarlehen (convertible loan), France uses obligations convertibles, and the Netherlands uses a converteerbare lening — each with jurisdiction-specific formality and notarization requirements. The EU Prospectus Regulation exempts private placements to fewer than 150 investors per member state from full prospectus requirements. GDPR considerations apply to any investor data processed in connection with the agreement.",[501,241,502,253,237,503,504,505,506,507,508,509],"term-sheet-D473","non-disclosure-agreement-nda-D12692","investment-proposal-D13992","board-resolution-D78","promissory-note-D434","business-plan-canvas-(one-page)-D12527","financial-projections_12-months-D360","cap-table-D13151","employment-agreement-executive-D543",{"emit_how_to":176,"emit_defined_term":176},{"primary_folder":128,"secondary_folder":512,"document_type":513,"industry":514,"business_stage":515,"tags":516,"confidence":522},"equity-and-mergers","agreement","general","startup",[517,518,519,520,521],"fundraising","convertible-note","startup-financing","equity-conversion","seed-funding",0.95,"\u003Ch2>What is a Convertible Note Agreement?\u003C/h2>\n\u003Cp>A \u003Cstrong>Convertible Note Agreement\u003C/strong> is a legally binding debt instrument a startup issues to an early investor in exchange for capital, with the agreed understanding that the loan will convert into equity — typically preferred stock — at a future priced financing round rather than being repaid in cash. The note accrues interest over its term, carries a maturity date as a backstop, and rewards the investor for early risk through two key mechanisms: a valuation cap (the maximum company valuation at which their shares will be priced) and a discount rate (a percentage reduction off the share price paid by later investors). Because it defers the need to agree on a company valuation at the time of investment, the convertible note is the most widely used instrument for pre-seed and seed rounds, allowing founders and investors to close capital quickly and cheaply before the company has the traction to support a priced equity round.\u003C/p>\n\u003Ch2>Why You Need This Document\u003C/h2>\n\u003Cp>Raising capital on a handshake or informal email chain — even from friends and family — creates serious legal, tax, and securities law exposure for both the company and the investor. Without a signed convertible note, there is no documented agreement on the conversion price, valuation cap, maturity date, or what happens in an acquisition, leaving every material term open to dispute at exactly the moment it matters most: a Series A closing or an exit. Convertible notes are also securities, meaning an undocumented issuance can constitute an unregistered securities offering, exposing the company to rescission liability and regulatory action. A properly drafted and executed convertible note protects the investor's right to convert at favorable terms, protects the company from unlimited repayment demands at maturity, and gives both parties a clean, documented record that integrates directly into the cap table and due diligence package when the next round closes. This template gives you a complete, attorney-reviewed starting point in minutes — significantly reducing drafting time and legal cost for standard seed-stage raises.\u003C/p>\n",1779808998912]