Equity Promissory Note Template for the United Arab Emirates

An Equity Promissory Note is a convertible debt instrument that allows you to raise capital for your business while providing investors with both debt security and equity conversion rights. Under United Arab Emirates law, this document serves as an unconditional promise to pay while incorporating sophisticated conversion mechanisms that can transform the debt into equity ownership under specified conditions.

When do you need this document?

You need an Equity Promissory Note when your company requires flexible financing that bridges debt and equity funding. This instrument is essential for startups seeking seed funding without immediately diluting founder equity, growth-stage companies raising capital for expansion while maintaining operational control, and businesses offering investors convertible securities with predetermined valuation caps or discount rates. The document is also crucial when you want to delay equity valuation discussions until future funding rounds or milestone achievements, or when providing investors with downside protection through debt features while offering equity upside potential.

Key legal considerations

Your Equity Promissory Note must include specific legal provisions to ensure enforceability and protect all parties' interests. The conversion mechanism requires precise definition, including conversion triggers such as qualified financing rounds, maturity dates, or company sale events. You must clearly specify conversion pricing methodologies, whether using valuation caps, discount rates, or pre-determined formulas. The document should address what happens upon default, including acceleration clauses and enforcement rights. Interest rates, if applicable, must comply with UAE Central Bank regulations, and you should include provisions for anti-dilution protection and voting rights during the debt phase. Security provisions, guarantees, and subordination arrangements require careful drafting to ensure proper priority in liquidation scenarios.

Legal requirements in United Arab Emirates

Under UAE law, your Equity Promissory Note must comply with Federal Law No. 18 of 1993 (Commercial Transactions Law), particularly Articles 478-537 governing promissory notes, which require the document to contain an unconditional promise to pay, specify the exact amount, identify the payee, and include the maker's signature. Federal Law No. 32 of 2021 (Commercial Companies Law) governs the equity conversion aspects, requiring compliance with share issuance procedures and shareholder approval requirements. The document must be drafted in Arabic or include certified Arabic translations for legal proceedings, and you should ensure compliance with UAE Central Bank Resolution No. 14/93 regarding commercial paper issuance. If your company is listed or regulated, additional Securities and Commodities Authority regulations under SCA Decision No. (3/R.M) of 2017 may apply. The Civil Transactions Law (Federal Law No. 5 of 1985) provides the foundational contractual framework, requiring clear terms, lawful consideration, and proper execution formalities.