Document background
The Loan Conversion Agreement is a sophisticated financial instrument used when parties wish to establish a mechanism for converting debt into equity. It is commonly used in Canadian business transactions, particularly in growth company financing, venture capital investments, and bridge financing scenarios. The agreement typically follows either a mandatory conversion structure (converting at a specific milestone or date) or an optional conversion structure (at the lender's discretion). This document must comply with Canadian federal laws including the Canada Business Corporations Act and provincial securities regulations. The agreement includes essential details such as conversion price, timing, mechanics, and resulting securities' rights, while also addressing corporate governance implications and regulatory requirements. It's particularly relevant in scenarios where companies seek flexible financing options or when investors want potential equity upside while initially structuring their investment as a loan.
