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A Convertible Loan Note lets startups raise quick funding by offering investors debt that can later change into shares. It works like a loan at first, but when certain events happen - like a major funding round or company sale - the debt converts to equity at a pre-agreed rate or discount.

Under South African company law, these notes give investors the security of debt with the upside potential of equity ownership. Investors earn interest while waiting for conversion, and startups benefit from delaying their company valuation until they have more trading history. The Companies Act and Financial Markets Act govern how these instruments can be structured and traded locally.

Convertible Loan Notes shine when your startup needs quick capital but can't agree on a firm valuation yet. They're especially useful for early-stage South African companies with high growth potential but limited trading history. This funding tool bridges the gap between your current position and your next major equity round.

Consider using these notes when traditional bank loans are too rigid and giving away equity too early could undervalue your company. They work particularly well for tech startups and innovative businesses where rapid scaling is expected. The flexible terms allowed under South African securities law let you negotiate interest rates, discount rates, and valuation caps that benefit both parties.

• Basic Convertible Notes: Standard terms with fixed interest rates and maturity dates, commonly used by early-stage startups
• Discount-Based Notes: Include percentage discounts on future equity rounds, typically 10-30% off the next funding valuation
• Valuation Cap Notes: Set maximum company valuations for conversion, protecting early investors from dilution
• Interest-Free Notes: Simplified versions focusing purely on equity conversion without ongoing interest payments
• Hybrid Notes: Combine multiple features like caps, discounts, and interest, popular among South African venture capital firms

• Startup Founders: Issue Convertible Loan Notes to raise capital while maintaining control and postponing formal valuation
• Angel Investors: Provide early-stage funding through these notes, gaining potential equity at a discount
• Corporate Lawyers: Draft and structure the notes to comply with South African securities laws and protect both parties
• Company Directors: Approve and sign the notes as part of their fiduciary duties
• Financial Advisors: Guide clients on conversion terms, valuation caps, and investment timing
• Company Secretaries: Maintain records and ensure proper registration with regulatory authorities

• Company Details: Gather full legal entity information, registration numbers, and director details
• Investment Terms: Define loan amount, interest rate, maturity date, and conversion triggers
• Valuation Metrics: Decide on discount rates, valuation caps, and conversion price formulas
• Security Requirements: Determine if the note needs additional security under South African law
• Investor Information: Collect full details of all participating investors and their investment amounts
• Board Approval: Secure necessary corporate authorizations and shareholder consents
• Document Generation: Use our platform to create a legally compliant note that includes all required elements

• Parties Section: Full legal names and details of the company and all investors
• Loan Terms: Principal amount, interest rate, and maturity date clearly stated
• Conversion Rights: Detailed triggers, mechanisms, and pricing formulas for equity conversion
• Security Provisions: Any collateral or guarantees securing the loan
• Default Clauses: Events of default and remedies under South African law
• Representations: Company warranties and investor acknowledgments
• Governing Law: Explicit choice of South African law and jurisdiction
• Signature Block: Space for authorized signatories with witness provisions

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects under South African law. While both involve lending money, their purposes and outcomes are fundamentally different.

• Investment Intent: Convertible Loan Notes are designed primarily as investment vehicles with future equity conversion rights, while Loan Agreements focus purely on debt repayment
• Risk Profile: Convertible Notes carry higher risk but offer potential equity upside; Loan Agreements provide fixed returns with more security
• Repayment Structure: Convertible Notes typically convert to shares instead of being repaid in cash; Loan Agreements require monetary repayment
• Legal Framework: Convertible Notes fall under both debt and equity regulations in South African law, while Loan Agreements are purely debt instruments
• Target Users: Convertible Notes are common in startup funding; Loan Agreements are used across all business types and sizes