Convertible Note Purchase Agreement Template for the United Arab Emirates

A Convertible Note Purchase Agreement is a sophisticated financing document that allows you to raise capital through debt instruments that can later convert into company shares. Under UAE law, this agreement must comply with Federal Law No. 32 of 2021 (Commercial Companies Law) and Federal Law No. 5 of 1985 (Civil Transactions Law), ensuring your financing structure meets both corporate governance and contract law requirements.

When do you need this document?

You need this agreement when your startup or growth-stage company requires bridge financing between funding rounds, when you want to defer valuation negotiations while still securing investment, or when you're preparing for a Series A round but need immediate capital. This document is particularly valuable in the UAE market when you're seeking investment from regional funds, family offices, or international investors who want conversion flexibility. You'll also require this agreement when structuring deals that accommodate both conventional and Shariah-compliant investment structures, as the UAE's diverse financial ecosystem often demands such flexibility.

Key legal considerations

Your agreement must clearly define conversion triggers, including qualified financing thresholds, automatic conversion upon IPO, and optional conversion rights. Pay careful attention to valuation cap and discount rate provisions, as these directly impact investor returns and your future dilution. Interest rate provisions must comply with UAE banking regulations and, if applicable, Islamic finance principles that prohibit conventional interest. Include comprehensive investor protection clauses such as information rights, most favored nation provisions, and anti-dilution protections. Ensure your conversion mechanism aligns with UAE Commercial Companies Law requirements for share issuance and capital increase procedures. Address scenarios where conversion may not occur, including maturity terms, prepayment options, and liquidation preferences.

Legal requirements in United Arab Emirates

Under UAE Federal Law No. 32 of 2021, your company must have proper corporate authorization through board resolutions and, where required, shareholder approvals for issuing convertible instruments. Ensure compliance with minimum capital requirements and share premium regulations that may affect conversion terms. Your agreement must specify the jurisdiction and governing law, particularly important if your company operates in a UAE free zone with specific regulatory frameworks. Include provisions for regulatory notifications required under the UAE Central Bank Law if your notes constitute regulated financial instruments. If your company or investors require Shariah compliance, incorporate appropriate profit-sharing mechanisms instead of conventional interest structures. Document proper execution requirements including witness signatures, notarization where mandated, and any required regulatory filings. Ensure your conversion provisions align with UAE regulations on foreign ownership limits and business licensing requirements that may affect post-conversion shareholding structures.