Convertible Note Subscription Agreement Template for Australia

A Convertible Note Subscription Agreement allows your Australian company to raise capital through debt that can convert to equity shares under specific conditions. This financing instrument combines the security of traditional debt with the growth potential of equity investment, making it an attractive option for both startups seeking flexible funding and investors wanting downside protection with upside participation.

When do you need this document?

You'll need this agreement when raising bridge funding between equity rounds, when you want to defer company valuation discussions, or when seeking quick capital injection without immediate dilution. It's particularly useful for startups preparing for Series A funding, companies needing working capital while negotiating larger investment rounds, or businesses wanting to offer investors conversion rights tied to future milestones. Many Australian tech companies use convertible notes during pre-seed or seed stages when traditional equity valuations may be premature or when you need to close funding quickly with streamlined documentation.

Key legal considerations

Your agreement must clearly define conversion triggers, such as qualified financing rounds, company exits, or maturity dates. Interest rates, discount rates for conversion, and valuation caps require careful structuring to balance investor returns with founder dilution. Security provisions and guarantor arrangements need proper documentation to ensure enforceability. Consider including investor protection clauses, such as information rights and anti-dilution provisions, while ensuring compliance with employee share scheme regulations if converting to employee equity. The agreement should address default scenarios, early redemption rights, and governing law clauses to provide certainty for all parties.

Legal requirements in Australia

Under the Corporations Act 2001, convertible notes are typically classified as debentures or managed investment schemes, requiring compliance with Chapter 6D fundraising provisions. You must ensure proper disclosure documentation, particularly if raising funds from retail investors or issuing to more than 20 investors within 12 months. ASIC registration may be required depending on the structure and investor base. The agreement must comply with Personal Property Securities Act 2009 if creating security interests, and consider Income Tax Assessment Act 1997 implications for interest deductibility and conversion tax treatment. Directors must ensure compliance with continuous disclosure obligations and related party transaction rules where applicable.