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A Convertible Loan Note combines the features of a loan and company shares, letting investors lend money to startups with the option to convert their investment into equity later. These notes are popular among Hong Kong's emerging companies because they delay the tricky task of setting a company valuation until a future funding round.

The conversion usually happens when the company raises its next major investment round. Investors often get shares at a discount compared to new investors, plus they earn interest on their loan until conversion. Under Hong Kong securities law, these notes must meet specific disclosure requirements and typically include key terms like the conversion price, interest rate, and maturity date.

Convertible Loan Notes work best when your startup needs quick funding but can't agree on a firm valuation with investors. They're particularly useful for early-stage Hong Kong companies that expect significant growth before their next major funding round. Many tech startups use these notes during seed funding or bridge rounds to avoid complex valuation discussions.

These notes make sense when you want to offer investors extra incentives, like discount rates on future shares, while preserving cash flow by deferring equity negotiations. They're also valuable when you need to close funding quickly - the documentation is simpler than traditional equity investment agreements, saving both time and legal costs.

• Basic Notes: Standard Convertible Loan Notes with simple interest and fixed conversion terms - popular among Hong Kong tech startups
• Discount Notes: Include a discount rate on future share price, typically 10-30% off the next funding round valuation
• Valuation Cap Notes: Set a maximum company valuation for conversion, protecting investors if the company's value soars
• Interest-Free Notes: Structured without interest payments but with more favorable conversion terms
• Multiple-Trigger Notes: Offer different conversion options based on various future events like IPO, acquisition, or specific funding rounds

• Startup Founders: Lead negotiations and sign the note on behalf of their company, seeking flexible funding without immediate equity dilution
• Angel Investors: Provide the initial funding and negotiate conversion terms, often seeking better rates than future investors
• Corporate Lawyers: Draft and review the notes, ensuring compliance with Hong Kong securities regulations
• Company Directors: Approve the terms and authorize the note issuance, taking on fiduciary responsibilities
• Financial Advisors: Help structure the deal terms and advise on valuation caps, interest rates, and conversion triggers

• Company Details: Gather current company valuation, financial statements, and shareholder information
• Investment Terms: Define loan amount, interest rate, maturity date, and conversion triggers
• Conversion Mechanics: Specify discount rate, valuation cap, and share class for conversion
• Security Measures: Determine if the loan needs collateral or personal guarantees under Hong Kong law
• Board Approval: Secure necessary corporate authorizations and shareholder consents
• Documentation Review: Use our platform to generate a compliant note template, then customize key terms

• Loan Terms: Principal amount, interest rate, and maturity date clearly stated
• Conversion Rights: Detailed mechanics and triggers for converting debt to equity
• Share Details: Type and class of shares to be issued upon conversion
• Party Information: Complete legal names and addresses of lender and borrower
• Security Provisions: Any collateral or guarantees securing the loan
• Default Clauses: Events of default and remedies under Hong Kong law
• Governing Law: Explicit statement choosing Hong Kong jurisdiction
• Execution Block: Proper signature sections for all required parties

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects, though both are debt instruments used in Hong Kong's business environment. The main distinction lies in their purpose and flexibility.

• Conversion Rights: Convertible Loan Notes include the option to convert debt into equity, while standard Loan Agreements remain purely debt instruments
• Interest Treatment: Convertible Notes often have more flexible interest terms, potentially rolling into equity upon conversion, whereas Loan Agreements require strict interest payment schedules
• Documentation Complexity: Convertible Notes include additional provisions for valuation caps, discount rates, and conversion triggers - making them more complex than basic Loan Agreements
• Regulatory Requirements: Under Hong Kong law, Convertible Notes face additional securities regulations since they involve potential equity ownership
• Target Users: Convertible Notes are typically used by startups seeking investment, while Loan Agreements serve broader commercial lending purposes