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Convertible Loan Agreement

Convertible Loan Agreement Generator for United Arab Emirates

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Convertible Loan Agreement Template

I need a Convertible Loan Agreement Template for a UAE technology startup, with a loan amount of AED 2 million, automatic conversion on a Series A funding round, and specific provisions for maintaining founder control until conversion.

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Document background
The Convertible Loan Agreement Template is designed for use in the United Arab Emirates when a company seeks to raise capital through a loan that can later be converted into equity shares. This financing instrument is particularly popular among growth-stage companies and startups in the UAE ecosystem, offering flexibility to both investors and companies. The template incorporates all necessary elements required under UAE Federal Law No. 32 of 2021 (Commercial Companies Law) and related regulations, including provisions for interest/profit calculation, conversion triggers, and share issuance procedures. It addresses specific UAE requirements regarding foreign ownership, corporate governance, and optional Sharia compliance. The document is structured to protect both lender and borrower interests while ensuring enforceability under UAE law.
Suggested Sections

1. Parties: Identification of the Lender and Borrower (Company), including full legal names, registration details, and addresses

2. Background: Context of the agreement, including company's business, purpose of the loan, and basic transaction structure

3. Definitions and Interpretation: Key terms used throughout the agreement, including Conversion Price, Conversion Rights, Qualifying Event, etc.

4. Loan Amount and Disbursement: Details of the loan amount, disbursement conditions, and drawdown procedures

5. Interest/Profit Rate: Specification of interest/profit rate, calculation method, and payment schedule, ensuring Sharia compliance if required

6. Conversion Mechanism: Terms and conditions for converting the loan into shares, including trigger events and conversion price calculation

7. Conversion Procedure: Step-by-step process for executing the conversion, including notices, timing, and documentation requirements

8. Representations and Warranties: Standard and specific warranties from both parties, including company's authority to issue shares upon conversion

9. Covenants: Ongoing obligations of the borrower, including information rights and operational restrictions

10. Events of Default: Circumstances constituting default and consequences, including acceleration rights

11. Termination: Circumstances and procedures for terminating the agreement

12. Confidentiality: Obligations regarding confidential information and announcements

13. Notices: Communication procedures and contact details for formal notices

14. Governing Law and Jurisdiction: Specification of UAE law as governing law and jurisdiction for disputes

Optional Sections

1. Security: Include when the loan is secured by company assets or third-party guarantees

2. Anti-dilution Provisions: Include for protection against share dilution before conversion, particularly relevant for startups

3. Tag-Along Rights: Include when lender requires right to participate in sale of shares by major shareholders

4. Board Observer Rights: Include when lender requires right to appoint observer to company's board meetings

5. Islamic Finance Provisions: Include when agreement needs to be Sharia-compliant, restructuring interest as profit sharing

6. Foreign Investment Provisions: Include when lender is foreign entity, addressing UAE foreign ownership restrictions

Suggested Schedules

1. Schedule 1: Form of Conversion Notice: Template notice for exercising conversion rights

2. Schedule 2: Conditions Precedent: List of documents and conditions required before loan disbursement

3. Schedule 3: Calculation of Conversion Price: Detailed formula and examples for calculating conversion price

4. Schedule 4: Warranties: Detailed list of company warranties

5. Schedule 5: Company Information: Key company details including capitalization table and corporate structure

6. Appendix A: Shareholders' Resolution: Pro-forma shareholders' resolution approving share issuance upon conversion

7. Appendix B: Board Resolution: Pro-forma board resolution approving loan and potential conversion

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Applicable Law
Board
Business Day
Company
Completion
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Directors
Disbursement Date
Encumbrance
Event of Default
Exit Event
Financial Year
Governing Law
Interest Rate
Investment Amount
Lender
Loan
Maturity Date
Memorandum of Association
Notice
Parties
Pre-Money Valuation
Qualifying Financing Round
Repayment Date
Securities
Share Capital
Shareholders
Shareholders Agreement
Shares
Subscription Price
Trade License
Transaction Documents
UAE
Valuation Cap
Relevant Industries

Technology

E-commerce

Financial Services

Healthcare

Real Estate

Manufacturing

Renewable Energy

Education Technology

Telecommunications

Media and Entertainment

Retail

Logistics

Professional Services

Biotechnology

Software Development

Relevant Teams

Legal

Finance

Corporate Development

Treasury

Compliance

Risk Management

Investment

Corporate Secretarial

Executive Leadership

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Legal Counsel

Investment Manager

Corporate Finance Director

Company Secretary

Finance Director

Venture Capital Associate

Investment Banker

Corporate Lawyer

Financial Controller

Treasury Manager

Business Development Director

Risk Manager

Compliance Officer

Industries
UAE Federal Law No. 32 of 2021 (Commercial Companies Law): Governs corporate structures and share issuance, crucial for the conversion mechanism of the loan into equity shares. Includes regulations on foreign ownership and corporate governance.
UAE Federal Law No. 5 of 1985 (Civil Transactions Law): Provides the fundamental framework for contracts, obligations, and civil transactions in the UAE, including basic principles of contract formation and enforcement.
UAE Federal Law No. 14 of 2018 (UAE Central Bank Law): Regulates banking activities and financial institutions, including lending operations and interest rates in the UAE.
UAE Federal Law No. 4 of 2000 (Securities and Commodities Authority Law): Governs securities matters and market regulations, relevant for the equity conversion aspect and potential future listing considerations.
UAE Federal Law No. 19 of 2018 (Foreign Direct Investment Law): Regulates foreign investment and ownership in UAE companies, crucial for determining conversion rights and restrictions for foreign lenders.
UAE Federal Law No. 10 of 1980 (Central Bank Law): Sets regulations on interest rates and banking operations, including usury restrictions and maximum interest rates.
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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