Kentucky Form of Convertible Promissory Note, Common Stock
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How to fill out Form Of Convertible Promissory Note, Common Stock?
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FAQ
Interest Rate. Any convertible note can be considered a loan since it requires an investor to invest money that will accrue in the same manner as any debt or loan with interest. ... Discount Rate. ... Maturity Date. ... Valuation Cap. ... Liquidation Preference.
Convertible notes are promissory notes that serve an additional business purpose other than merely representing debt. Convertible notes include all of the terms of a vanilla promissory note, such as an interest rate and the pledge of underlying security (if applicable).
Convertible notes are recorded as debt on the company's balance sheet up until the conversion event. After conversion, they become equity in the company. As debt instruments, convertible notes also have a maturity date and can earn interest (two key differences with SAFEs, as outlined further down).
EXAMPLE: A startup company with 1,000,000 shares of common stock closes a seed funding round of $1,000,000 in the form of a convertible note, with a valuation cap of $5,000,000 pre-money valuation on the next round of financing.
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).