Document background
The Convertible Debt Agreement serves as a crucial financing instrument in the South African market, particularly for growing companies seeking capital without immediately setting a valuation. This document is typically used when a company needs interim financing before a larger equity round, or when parties want to defer valuation discussions while providing immediate capital. The agreement must comply with South African corporate law, tax regulations, and where applicable, exchange control requirements. It includes detailed provisions for loan terms, interest rates, conversion mechanisms, and shareholder rights post-conversion. The document is particularly popular in the startup ecosystem as it offers investors downside protection through debt while maintaining upside potential through equity conversion rights. The agreement needs to carefully balance the interests of both parties while ensuring enforceability under South African law.
