North Carolina Convertible Note Subscription Agreement

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US-ENTREP-0036-1
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A founders' agreement is a document created by the founders of a company to establish how the company will function. It is the product of pre-incorporation discussions that should take place among the company's founders before they establish the company. It includes provisions on ownership structure, decision making, dispute resolution, choice of law, transfer of ownership, ownership percentages, voting rights, intellectual property rights, and more.

A North Carolina Convertible Note Subscription Agreement is a legal document that outlines the terms and conditions of an investment in a start-up or early-stage company in North Carolina. This agreement allows investors to provide capital to the company in exchange for convertible promissory notes, which can be converted into equity at a later stage. The North Carolina Convertible Note Subscription Agreement typically contains the following key provisions: 1. Parties: It identifies the names and contact information of the investor(s) and the company. 2. Investment Amount: The agreement states the amount of money the investor is willing to invest in the company. 3. Convertible Note Terms: It defines the terms of the convertible note, such as the interest rate, maturity date, conversion discount, and valuation cap. The interest rate refers to the interest the company will pay on the principal amount invested. The maturity date indicates the deadline for the company to repay the investment or convert it into equity. The conversion discount allows the investor to convert the outstanding amount into equity at a discounted price. The valuation cap sets a maximum company valuation at which the investor can convert the note into equity. 4. Conversion Mechanics: The agreement outlines the process and requirements for converting the convertible note into equity. It may specify the triggers for conversion, such as a subsequent funding round or certain milestones achieved by the company. 5. Representations and Warranties: Both the investor and the company make certain representations and warranties to ensure the accuracy of the information provided and their legal capacity to enter into the agreement. 6. Governing Law and Jurisdiction: It specifies that the agreement is governed by North Carolina law, and any disputes will be resolved in North Carolina courts. 7. Miscellaneous Clauses: The agreement may also include miscellaneous clauses covering topics such as confidentiality, assignment, notices, and amendments. While there may not be specific types of North Carolina Convertible Note Subscription Agreements, variations may occur based on the specific terms negotiated between the investor and the company. These variations may include customized interest rates, conversion discounts, and valuation caps depending on the unique circumstances of each investment. In summary, a North Carolina Convertible Note Subscription Agreement is a legally binding document that formalizes an investment in a North Carolina-based start-up or early-stage company through the issuance of convertible promissory notes. The agreement protects the rights of both the investor and the company and provides clarity on the terms of the investment.

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How to fill out North Carolina Convertible Note Subscription Agreement?

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FAQ

Discount rate on convertible debt conversion Conversion discounts are usually between 10% and 20%.

Redemption provisions upon default: Convertible loan notes will often include redemption provisions, where a list of triggers and default events will allow the investor to redeem the loan instead of converting it to shares.

The discount rate, typically 15% to 25% percent, gets applied to the per-share price of the new investor. For example, let's say your convertible note had a 20% discount and the new investors are paying $1 per share. The convertible note investor will convert at $0.80 per share.

Convertible loan notes (?CLN?) and advance subscription agreements (?ASA?) are ways of companies getting a cash injection which may later convert into shares, rather than being paid back in cash. ASAs tend to be shorter agreements than CLNs and therefore involve less negotiation.

The discount rate is a term in a Convertible Note or SAFE that gives investors a reduced price to that paid by the Series A investors. Typical discounts range from 0% to 20%.

What Is a Convertible Note? A convertible note is a short-term debt agreement that converts into equity at a future date. Usually, this happens when one of these events takes place: ? The company raises enough capital to reach a pre-determined benchmark.

Let's focus on the first methodology: The pre-money method. This allows you to calculate the price per share, which in turn helps you find the number of shares the convertible note holder and the new investor will eventually receive.

Discount rate: A reduced price (e.g., 10% to 35% lower) for when notes convert into equity. For instance, if the market rate is $2.50 per share and the convertible note has a 20% discount, the note holder can buy shares at $2.00.

Does the convertible note have to be paid back? In theory, because they are debt, convertible notes must be paid back. But in practice, this is rarely the case. If a startup fails to raise a priced equity round before the maturity date, it's highly unlikely it will have the funds needed to repay the note principal.

A prepayment isn't usually allowed, unless the majority of investors, by dollar amount, consent to it. This is because a prepayment more or less defeats the entire purpose of making a convertible note investment because it takes away the potential upside.

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North Carolina Convertible Note Subscription Agreement