Connecticut Term Sheet — Convertible Debt Financing is an important document used in investment deals, particularly for startups and early-stage companies. It outlines the terms, conditions, and provisions associated with convertible debt financing provided by investors in Connecticut. This term sheet serves as a precursor to a more detailed and legally binding agreement, providing an overview of the key terms that will govern the investment. It helps both investors and companies reach a preliminary agreement on the financing structure before moving forward with a formal agreement. Key terms and provisions commonly found in a Connecticut Term Sheet — Convertible Debt Financing include: 1. Debt Instrument: The term sheet specifies that the investment will be in the form of convertible debt, which means that the initial investment is considered a loan, but has the potential to convert into equity at a later stage, usually in connection with a future financing round or event. 2. Conversion Mechanics: The term sheet outlines the conversion mechanics, such as the conversion price, conversion ratio, and any adjustments or anti-dilution provisions that may apply. These provisions determine the ratio at which the debt will convert into equity. 3. Interest Rate: The term sheet defines the interest rate, either fixed or variable, applied to the loan portion of the investment. It also stipulates if the interest will accrue or be paid periodically. 4. Maturity Date: The term sheet states the maturity date, which is the deadline by which the debt must be repaid or converted into equity. If the debt is not converted or repaid by the maturity date, it might trigger additional penalties or consequences. 5. Valuation Cap: In some cases, term sheets include a valuation cap, which sets the maximum price at which the debt can convert into equity. This protects the investor from dilution if the company's valuation greatly increases before conversion. 6. Investor Rights: The term sheet may grant certain rights to the investor, such as information rights, voting rights, and participation rights in future financing rounds. 7. Use of Proceeds: It provides clarity on how the invested funds will be utilized within the company, ensuring transparency and accountability. Different types of Connecticut Term Sheet — Convertible Debt Financing may exist based on specific variations in terms and conditions, such as variations in conversion mechanics, interest rates, maturity dates, and investor rights. It's important for companies and investors to tailor the term sheet to their specific needs and circumstances while considering legal and regulatory requirements.
Connecticut Term Sheet - Convertible Debt Financing
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How to fill out Connecticut Term Sheet - Convertible Debt Financing?
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FAQ
The Minimum amount of Investment required is Rs 25 lakhs. CCD'S can be issued at any amount. There is no minimum amount criteria. Convertible Notes can be issued without prior valuation.
A convertible note should be classified as a Long Term Liability that then converts to Equity as stipulated from the contract (usually a new fundraising round).
Although it is customary to forego a term sheet, in some cases it may be required if the parties need to negotiate certain terms. It can be advantageous to use a term sheet for the company to easily summarize the terms of the notes for potential other investors purchasing a convertible note.
Typical terms of convertible notes are: interest rate, maturity date, conversion provisions, a conversion discount, and a valuation cap.
For tax purposes, the tax basis of the convertible debt is the entire proceeds received at issuance of the debt. Thus, the book and tax bases of the convertible debt are different. ASC 740-10-55-51 addresses whether a deferred tax liability should be recognized for that basis difference.
Convertible Notes are loans ? so they are recorded on the Balance Sheet of a company as a liability when they are made. Depending on the debt's maturity date, they can either be shown as a current liability (loans maturing within 12 months) or as a Long-term liability (loans maturing over 12 months).
Convertible Note - Reporting Requirements FIRC and KYC of the non-resident investor. Name and address of the investor and AD bank. Copy of MOA / AOA. Certificate of Incorporation. Startup Registration Certificate. Certificate from Practising Company Secretary.
A term sheet is usually a non-binding agreement outlining the basic terms and conditions of the investment. It serves as a template for the convertible note for both parties.