Agreement For Conversion Of Loan Into Equity

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Multi-State
Control #:
US-CC-7-1224
Format:
Word; 
Rich Text
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This sample form, a detailed Agreement and Plan of Conversion document, is a model for use in corporate matters. The language is easily adapted to fit your specific circumstances. Available in several standard formats.
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FAQ

In its simplest form, a creditor's existing debt (including principal and accrued interest) is converted into shares in the borrower. New shares are issued to the lender in satisfaction of the debt and the loan is no longer owed.

Debt-to-equity swaps are common transactions in the financial world. They enable a borrower to transform loans into shares of stock or equity. Most commonly, a financial institution such as an insurer or a bank will hold the new shares after the original debt is transformed into equity shares.

Before taking out a loan, approve a special resolution approving the terms of the loan, and file the special resolution in e-Form MGT-14 within 30 days. By making a resolution at the Board Meeting, convert the loan into shares, and file e-form PAS-3 for allotment of shares under the Companies Act, 2013, within 30 days.

If a company has taken any unsecured loan from its directors and wants to convert such unsecured loan into equity at some future period of time, then it has to ensure to enter into debt conversion agreement with such directors at the time of accepting such loan and also to pass a special resolution.

Typically, the loan converts into equity with a conversion discount in valuation that is lower than the price paid by the investors purchasing shares in the financing to compensate the note holder for bearing the risk of investment prior to the financing. A typical discount is often between 10-30%.

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A convertible note is an investment tool that investors consider debtequity. To do business smoothly, the debt is temporarily converted into equity capital.The consequences of a non-agreement can lead to conflicts between the two parties if the business recovers. 6) "Conversion" means changing the form of financing of a project, e.g. From bridge financing to permanent financing, that does not increase the amount of debt. The investor does not obtain the equity (SAFE preferred stock) until an event listed in the SAFE agreement triggers the conversion.

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Agreement For Conversion Of Loan Into Equity