Secured Convertible Promissory Note Template for Canada

A secured convertible promissory note combines debt financing with equity conversion options while providing security interests in company assets. This hybrid instrument allows you to access capital without immediately determining your company's valuation, while giving investors both downside protection through security interests and upside potential through conversion rights.

When do you need this document?

You'll need a secured convertible promissory note when your company requires bridge financing before a major equity round, when traditional bank loans are unavailable or insufficient, or when you want to offer investors additional security beyond unsecured debt. This document is commonly used in startup and growth company financing, particularly when you expect to raise a Series A or larger funding round within 12-24 months. It's also valuable when investors want security interests in your assets but are willing to accept conversion terms that could result in equity ownership if your company performs well.

Key legal considerations

The security component requires you to grant security interests in specific company assets, which must be properly perfected under provincial Personal Property Security Act requirements. You'll need to carefully structure the conversion mechanics, including conversion triggers, pricing formulas, and anti-dilution provisions that comply with corporate law requirements. Interest rate provisions must not exceed the Criminal Code's maximum legal rate of 60% annually to avoid criminal usury violations. Default provisions should be clearly defined and enforceable, while conversion terms must align with your corporate structure and any existing shareholder agreements. The document should also address what happens to security interests upon conversion and include appropriate representations and warranties from both parties.

Legal requirements in Canada

Under Canadian law, you must ensure the promissory note complies with federal Criminal Code interest rate limits and provincial Securities Act requirements, as convertible notes are considered securities. The security interests must be created and perfected according to the applicable provincial Personal Property Security Act, which typically requires registration on the Personal Property Registry within specified timeframes. If your company is federally incorporated, the Canada Business Corporations Act governs corporate borrowing authority and share issuance upon conversion. You may need to file exemption notices under provincial Securities Acts if the offering relies on private placement exemptions. Additionally, corporate resolutions from your board of directors are typically required to authorize both the borrowing and the potential share issuance upon conversion, and these must comply with your corporate bylaws and any existing unanimous shareholder agreements.