Convertible Loan Agreement Template for Switzerland
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What is a Convertible Loan Agreement?
The Convertible Loan Agreement under Swiss law is primarily used in growth company and startup financing scenarios where traditional equity investment might be premature or impractical. This document is particularly relevant when companies need bridge financing between funding rounds or when parties prefer to defer company valuation discussions. The agreement, governed by Swiss law and complying with the Swiss Code of Obligations, provides investors with the security of a debt instrument while offering the potential upside of equity participation through conversion rights. It includes detailed provisions on loan terms, conversion mechanisms, investor protections, and company obligations. The document is commonly used in the Swiss startup ecosystem and can be adapted for various investment sizes and company stages, from early-stage startups to more established growth companies seeking additional capital.
About the Convertible Loan Agreement
A Convertible Loan Agreement is a sophisticated financing instrument that combines debt and equity features, allowing you to secure funding while deferring company valuation decisions. Under Swiss law, this document is governed by the Swiss Code of Obligations and provides investors with downside protection through debt provisions while offering upside potential through conversion rights into company shares.
When do you need this document?
You'll need a Convertible Loan Agreement when your startup requires bridge financing between funding rounds, or when you're seeking early-stage investment but finding it difficult to agree on company valuation with investors. This document is particularly useful if you're a Swiss company preparing for a Series A round but need immediate capital to reach key milestones. It's also valuable when angel investors or venture capital funds want to invest quickly without lengthy due diligence processes typical of equity rounds. Additionally, you may use this agreement when existing shareholders prefer to maintain their ownership percentages temporarily while still allowing new investment into the company.
Key legal considerations
The conversion mechanism is the most critical aspect of your agreement, requiring clear definition of conversion triggers such as qualified financing rounds, company sale, or maturity dates. You must specify the conversion price formula, typically including a discount rate or valuation cap to reward early investors for their risk. Interest provisions need careful attention, as Swiss law requires compliance with usury regulations under the Swiss Code of Obligations. The agreement should address what happens if conversion doesn't occur, including repayment terms and potential security interests. Investor protection clauses such as anti-dilution provisions, information rights, and consent requirements for major corporate decisions require precise drafting. You should also consider including most favored nation clauses that ensure early investors receive benefits granted to later investors.
Legal requirements in Switzerland
Under Swiss law, your Convertible Loan Agreement must comply with the Swiss Code of Obligations, particularly Articles 312-318 governing loan agreements and Articles 620-763 covering corporate law aspects. The agreement requires written form for enforceability, and you must ensure interest rates comply with Swiss usury laws. If your company is incorporated in Switzerland, any conversion into shares must follow Swiss corporate law procedures, including potential requirements for shareholder approval and capital increase formalities. The Swiss Financial Market Infrastructure Act (FMIA) may apply if the convertible loan qualifies as a financial instrument, requiring additional compliance measures. You should also consider the Swiss Federal Act on Financial Services (FinSA) requirements if the loan is offered to certain categories of investors. Corporate formalities such as board resolutions authorizing the loan and potential conversion must be properly documented. Additionally, if foreign investors are involved, you may need to consider Swiss foreign investment regulations and tax implications for both parties.
GOVERNING LAW
Applicable law
This Convertible Loan Agreement is drafted to comply with Switzerland law. Key legislation includes:
Swiss Civil Code (ZGB): Provides fundamental legal principles and good faith requirements that apply to all contracts and legal relationships in Switzerland (particularly Art. 2 on good faith)
Swiss Financial Market Infrastructure Act (FMIA): May be relevant if the convertible loan qualifies as a financial instrument or if either party is a regulated entity
Swiss Federal Act on Financial Services (FinSA): Relevant for information obligations and client categorization if the convertible loan is offered as a financial instrument
Swiss Debt Enforcement and Bankruptcy Act (DEBA): Important for understanding creditor rights and ranking in case of borrower insolvency
Swiss Federal Act on Collective Investment Schemes (CISA): May be relevant if the convertible loan is structured in a way that could be considered a collective investment scheme
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