Equity Promissory Note for United Arab Emirates

Equity Promissory Note Template for United Arab Emirates

A comprehensive legal instrument governed by UAE law that combines the characteristics of a promissory note with equity conversion features. The document represents an unconditional promise to pay a specified sum of money with the additional right to convert the debt into equity shares of the issuing company under prescribed conditions. It complies with UAE Federal Law No. 18 of 1993 (Commercial Transactions Law) and Federal Law No. 32 of 2021 (Commercial Companies Law), incorporating necessary provisions for both debt obligation and equity conversion mechanisms while ensuring adherence to local regulatory requirements.

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What is a Equity Promissory Note?

The Equity Promissory Note is a sophisticated financial instrument used in the United Arab Emirates for businesses seeking to secure investment while offering investors the flexibility of debt-to-equity conversion. This document is particularly valuable for growth-stage companies and startups looking to raise capital without immediate equity dilution, while providing investors with the security of debt and upside potential of equity. The instrument must comply with UAE commercial and companies law, including Federal Law No. 18 of 1993 and Federal Law No. 32 of 2021. It contains specific provisions regarding payment obligations, conversion mechanics, trigger events, and enforcement rights. The Equity Promissory Note typically includes detailed terms about conversion pricing, timing, and processes, making it a crucial tool in UAE corporate finance transactions.

What sections should be included in a Equity Promissory Note?

1. Parties: Identification of the maker (issuer) and payee of the promissory note, including full legal names and addresses

2. Background: Context of the issuance, including the underlying equity transaction or relationship

3. Definitions: Key terms used in the document, particularly those relating to equity conversion and payment obligations

4. Promise to Pay: Unconditional promise to pay a specific sum, including the amount in both numbers and words

5. Payment Terms: Details of payment date(s), currency, and method of payment

6. Equity Conversion Rights: Terms and conditions for converting the note into equity, including conversion price and mechanism

7. Security: Details of any security or collateral backing the note

8. Events of Default: Circumstances that trigger immediate payment obligation or other remedies

9. Enforcement: Rights and remedies available to the payee in case of default

10. Governing Law and Jurisdiction: Specification of UAE law as governing law and relevant courts

What sections are optional to include in a Equity Promissory Note?

1. Sharia Compliance: Statement and provisions ensuring compliance with Islamic finance principles, used when the note needs to be Sharia-compliant

2. Interest/Profit Rate: Terms for any applicable interest or profit rate, if not structured as zero-coupon

3. Transferability: Provisions regarding the transfer or assignment of the note, if transferability is to be permitted

4. Tax Provisions: Allocation of tax responsibilities and withholding requirements, if applicable

5. Notices: Process for delivering formal notices between parties, if complex communication requirements exist

6. Amendment Provisions: Procedures for modifying the note terms, if flexibility is required

What schedules should be included in a Equity Promissory Note?

1. Payment Schedule: Detailed schedule of payment dates and amounts, if multiple payments are involved

2. Conversion Calculations: Formula and examples of equity conversion calculations

3. Security Details: Detailed description of any security or collateral provided

4. Corporate Authorizations: Copies of corporate approvals and authorizations for issuing the note

5. Equity Information: Details of the equity shares into which the note may be converted, including rights and restrictions

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

Publisher

Genie AI

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant Industries

Technology

Real Estate

Healthcare

Manufacturing

Retail

Financial Services

Professional Services

Energy

Construction

Telecommunications

Education

Transport & Logistics

Relevant Teams

Legal

Finance

Corporate Secretariat

Treasury

Compliance

Risk Management

Corporate Development

Investment

Board of Directors

Executive Management

Relevant Roles

Chief Financial Officer

Chief Executive Officer

Finance Director

Legal Counsel

Corporate Secretary

Investment Manager

Business Development Director

Financial Controller

Compliance Officer

Treasury Manager

Corporate Finance Manager

Investment Analyst

Risk Manager

Board Director

Industries
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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