{"id":2339,"date":"2022-02-16T03:28:17","date_gmt":"2022-02-16T03:28:17","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2339"},"modified":"2024-12-10T03:31:54","modified_gmt":"2024-12-10T03:31:54","slug":"what-happens-when-convertible-note-converts","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/what-happens-when-convertible-note-converts\/","title":{"rendered":"What Happens When a Convertible Note Converts?"},"content":{"rendered":"\n

If you are thinking of <\/span>financing<\/span> your startup company<\/span><\/a>, you may have come across convertible notes. Convertible notes are an excellent way of raising money at the early stages of your business without needing to pay coupons. Knowing what will happen when the convertible note converts and the noteholders get their equity share in your business is essential.<\/span><\/p>\n\n\n\n

This article will explain what happens when a convertible note converts, and will also touch on broader points to keep in mind as the issuer of convertible notes<\/a>.<\/span><\/p>\n\n\n\n

What is a Convertible Note?<\/span><\/h2>\n\n\n\n

Put simply, a convertible note is a debt instrument used to raise money, usually for early-stage companies. A convertible note differs from a standard note. Instead of materialising into a payment of the principal at its maturity date, the convertible note converts into an equity share (in the form of preferred stock) in your company. This means that you will usually not be obliged to pay interest, coupon payments, or the principal sum at the maturity date while the noteholder has the note. <\/span><\/p>\n\n\n\n

\n

The maturity date is when an investment usually becomes due and is repaid to the investor.<\/span><\/p>\n<\/div>\n\n\n\n

Convertible notes usually convert subject to certain conditions. The conditions under which the convertible note converts will influence exactly what happens. Thus, it is essential to familiarise yourself with the conditions you agreed upon as part of your note issuance. <\/span><\/p>\n\n\n\n

When Will It Convert?<\/span><\/h2>\n\n\n\n

A convertible note, as mentioned, will convert subject to certain conditions. Those conditions, sometimes known as trigger events, vary depending on the terms of the note. Some common trigger events are:<\/span><\/p>\n\n\n\n