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Equity Promissory Note for the United Kingdom

Equity Promissory Note Template for England and Wales

An Equity Promissory Note is a legal instrument under English and Welsh law that combines elements of debt and equity financing. It represents a written promise to either pay a specified sum or issue equity shares under predetermined conditions. The document incorporates specific provisions for conversion rights, valuation mechanisms, and compliance with UK company law and financial regulations.

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What is a Equity Promissory Note?

An Equity Promissory Note is commonly used in corporate financing scenarios where traditional debt or immediate equity issuance may not be optimal. This document, governed by English and Welsh law, provides a flexible financing tool that bridges the gap between debt and equity financing. It typically includes detailed terms for conversion rights, payment obligations, and share issuance mechanisms, while ensuring compliance with UK corporate and securities regulations. The document is particularly valuable for companies seeking bridge financing or investors preferring a convertible investment structure.

What sections should be included in a Equity Promissory Note?

1. Parties: Identification of the issuer and holder of the note

2. Background: Context and purpose of the equity promissory note

3. Definitions: Key terms used throughout the document

4. Promise to Pay: Core commitment to issue equity or pay specified amount

5. Terms of Conversion: Conditions and mechanics for converting note to equity

6. Payment Terms: Timeline, amount, and method of payment

7. Representations and Warranties: Statements of fact and assurances by the issuer regarding their capacity and authority

8. Governing Law and Jurisdiction: Specification of English and Welsh law as governing law and related jurisdictional provisions

What sections are optional to include in a Equity Promissory Note?

1. Security: Details of any collateral or security arrangements when the note is secured against specific assets

2. Interest: Interest calculation and payment terms when the note bears interest

3. Events of Default: Circumstances constituting default and consequences thereof

4. Transferability: Provisions governing if and how the note can be transferred to other parties

5. Acceleration: Circumstances under which the payment obligations may be accelerated

What schedules should be included in a Equity Promissory Note?

1. Schedule 1 - Share Capital Structure: Current and post-conversion capital structure of the issuing company

2. Schedule 2 - Conversion Calculations: Detailed methodology for calculating conversion ratios and share allocations

3. Schedule 3 - Form of Conversion Notice: Template notice to be used when exercising conversion rights

4. Schedule 4 - Pre-emption Rights: Details of any existing pre-emption rights that may affect conversion

Authors

Alex Denne

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

Jurisdiction

England and Wales

Publisher

Ƶ

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant legal definitions

































Clauses



























Industries

Companies Act 2006: Primary legislation governing company shares, share capital, issuance, transfers, and directors' duties. Key sections relate to share documentation and authority requirements.

Financial Services and Markets Act 2000: Regulates financial instruments, financial promotions, and investment requirements. Essential for ensuring compliance with UK financial services regulations.

Bills of Exchange Act 1882: Establishes fundamental principles for negotiable instruments and requirements for valid promissory notes in England and Wales.

FCA Regulations: Financial Conduct Authority regulations governing regulated investment products and financial instruments.

UK Securities Laws: Framework covering prospectus requirements and financial promotion rules for securities and investment instruments.

Financial Services Act 2012: Legislation covering market abuse provisions and establishing the current financial regulatory framework.

Stamp Duty Regulations: Tax regulations concerning stamp duty obligations on share transfers and certain financial instruments.

Capital Gains Tax Rules: Tax legislation governing the treatment of gains or losses from share disposals and financial instruments.

Income Tax Legislation: Tax rules affecting the treatment of income or returns from equity instruments.

Contract Law Principles: Common law principles covering offer, acceptance, consideration, intention to create legal relations, and capacity to contract.

Equity Law Principles: Common law principles governing fiduciary duties and equitable remedies in relation to share and financial instruments.

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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