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Unsecured Convertible Promissory Note for the United Kingdom

Unsecured Convertible Promissory Note Template for England and Wales

A legal document governed by English and Welsh law that evidences a debt obligation which can be converted into equity shares of the borrowing company under specified conditions. It combines elements of debt and potential equity ownership, typically used in early-stage financing where company valuation might be difficult to determine. The document outlines the loan amount, interest rate, maturity date, conversion mechanisms, and events triggering conversion.

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Unsecured Convertible Promissory Note

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What is a Unsecured Convertible Promissory Note?

An Unsecured Convertible Promissory Note is commonly used in early-stage financing scenarios under English and Welsh law when traditional debt or equity financing may not be suitable. This instrument provides flexibility by allowing debt to convert into equity, typically during future funding rounds or specific trigger events. It's particularly useful when immediate company valuation is challenging or when parties want to defer valuation discussions. The document includes essential terms such as conversion rights, interest rates, maturity dates, and default provisions, while operating within the framework of English commercial law.

What sections should be included in a Unsecured Convertible Promissory Note?

1. Parties: Identification of lender and borrower with full legal details

2. Background: Context of the loan and purpose

3. Definitions: Key terms used throughout the document

4. Loan Amount and Terms: Principal amount, interest rate, and maturity date

5. Conversion Rights: Terms and mechanisms for converting debt to equity

6. Repayment Terms: Payment schedule and methods

7. Events of Default: Circumstances constituting default and consequences

8. Governing Law: Specification of English and Welsh law as governing law

What sections are optional to include in a Unsecured Convertible Promissory Note?

1. Security: Although unsecured, may include negative pledge provisions when additional protection for lender is required

2. Representations and Warranties: Borrower's statements about its condition and capacity, used for more sophisticated transactions

3. Information Rights: Lender's rights to receive financial information, typically included for institutional lenders or larger amounts

4. Transfer Provisions: Rights to transfer or assign the note, included when transferability is important to lender

What schedules should be included in a Unsecured Convertible Promissory Note?

1. Conversion Mechanics Schedule: Detailed procedures for conversion process

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

3. Payment Schedule: Detailed repayment timeline if applicable

4. Corporate Authorizations: Evidence of authority to enter into agreement

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


























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Industries

Companies Act 2006: Primary legislation governing company law in the UK, particularly relevant for share issuance and conversion rights in convertible notes

Law of Property Act 1925: Fundamental legislation dealing with property law in England and Wales, relevant for the creation and transfer of legal interests

Consumer Credit Act 1974: Regulates credit agreements and may apply if the borrower could be classified as a consumer

Financial Services and Markets Act 2000: Primary legislation for financial services regulation in the UK, including investment activities and financial promotions

Financial Promotion Order 2005: Regulates the communication of financial promotions and investment opportunities in the UK

Regulated Activities Order 2001: Specifies which activities require FCA authorization and regulation

Prospectus Regulation Rules: Guidelines for public offerings of securities, may be relevant if the note is part of a larger offering

Common Law Contract Principles: Fundamental principles governing contract formation, including offer, acceptance, consideration, and intention to create legal relations

Unfair Contract Terms Act 1977: Regulates unfair terms in contracts and limits the extent to which liability can be excluded

Misrepresentation Act 1967: Governs false statements made during contract negotiation and provides remedies for misrepresentation

Income Tax Act 2007: Relevant for tax treatment of interest payments and conversion features

Corporation Tax Act 2009: Governs corporate tax implications of convertible instruments

Taxation of Chargeable Gains Act 1992: Relevant for tax treatment of gains upon conversion or disposal of the note

Money Laundering Regulations 2017: Requirements for due diligence and anti-money laundering procedures in financial transactions

FCA Regulations: Financial Conduct Authority rules and guidelines that may apply to the issuance and trading of convertible notes

Companies House Requirements: Filing and registration requirements for company charges and securities

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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