Add contents in the Convertible Note Agreement Template in a few clicks

Aug 6th, 2022
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Although it is customary to forego a term sheet, in some cases it may be required if the parties need to negotiate certain terms. It can be advantageous to use a term sheet for the company to easily summarize the terms of the notes for potential other investors purchasing a convertible note.
Structuring a convertible note requires careful consideration of key elements. Typically, convertible notes feature the principal amount, interest rate, maturity date, and conversion terms. The conversion discount and valuation cap are crucial components influencing the conversion of the note into equity.
EXAMPLE: A startup company with 1,000,000 shares of common stock closes a seed funding round of $1,000,000 in the form of a convertible note, with a valuation cap of $5,000,000 pre-money valuation on the next round of financing.
Example: a Company issues a $1 million convertible P-Note with no discount and no cap. Subsequently, the Company obtains Series A financing at $20 million valuation. The loan would convert such that the investor would own 5% of the shares [=$1 million loan / $20 million valuation].
A convertible note should be classified as a Long Term Liability that then converts to Equity as stipulated from the contract (usually a new fundraising round).
Copyright PURE Asset Management 2022. A convertible note, also called a hybrid security or hybrid, refers to a debt instrument that can be converted into equity (ownership in a company) at some point in time in the future.
The general accounting treatment of a convertible note involves initially recording it as a liability on the balance sheet. Over time, interest will accrue, and any potential conversion into equity should be accounted for when the conversion event occurs.
Following documents need to file Form CN: A declaration certificate from CS. the FIRC and KYC from bank is required. Convertible notes agreement. Copy of MOA / AOA in case investor is a Body Corporate. Certificate of Incorporation. Start-up Registration Certificate. PAN of the Company.

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