Convertible Note Certificate

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What is it?

A Convertible Note Certificate is a document used in convertible debt financing, a type of security frequently issued by startups when raising seed capital.

The Convertible Note Certificate is a written promise to repay that debt at a specified time, with the option to convert that debt into equity (shares) in that startup upon the occurrence of a specified event.

Why do you need it?

In a convertible debt financing, the seed investor provides an interest bearing loan to the startup. In return, the startup issues the seed investor a Convertible Note Certificate that records the loan/investment amount and contains an important conversion feature: a promise to allow the seed investor the option to convert the debt amount into shares of the company upon a specified future event.

The terms of the convertible debt arrangement are usually defined in a Convertible Note Subscription Agreement.

Key clauses to watch for:

When drafting a Convertible Note Certificate, it is important to focus on a number of key clauses, in particular:

  • Details of the company;
  • Details of the holder of the convertible notes;
  • Date of the Convertible Note Subscription Agreement made by the company;
  • Certificate number of the convertible note;
  • Number of convertible notes issued in this certificate;
  • Monetary value of the notes in total; and
  • Signing date of convertible note certificate by both parties.

Convertible Note Certificate Document

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