Convertible Promissory Note Template for Switzerland

A Convertible Promissory Note under Swiss law is a hybrid financial instrument that combines elements of debt and equity financing. This document establishes a debt obligation that can convert into equity under specified conditions, typically during a future financing round. The agreement is governed by Swiss law, particularly the Swiss Code of Obligations, and includes provisions for principal amount, interest, maturity date, conversion mechanisms, and investor rights. It addresses both the debt aspects under Swiss securities law and the equity components under Swiss corporate law, making it a sophisticated instrument for early-stage company financing.

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What is a Convertible Promissory Note?

The Convertible Promissory Note is a crucial financing instrument in the Swiss business landscape, particularly for startups and growing companies seeking flexible funding options. This document is typically used in bridge financing scenarios, where companies need immediate capital but prefer to defer equity valuation discussions to a future date. Under Swiss law, the note must comply with the Swiss Code of Obligations' requirements for both debt instruments and potential equity conversion. The document includes essential terms such as principal amount, interest rate, maturity date, conversion triggers, and price mechanisms, while also addressing specific Swiss legal requirements for securities and corporate governance. It's commonly used between funding rounds or when companies need quick access to capital without the complexity of a full equity financing round.

What sections should be included in a Convertible Promissory Note?

1. Parties: Identification of the issuer (company) and the noteholder (investor)

2. Background: Context of the investment and purpose of the note

3. Definitions: Key terms used throughout the agreement

4. Promise to Pay: Principal amount, interest rate, and payment terms

5. Maturity Date: Date when the note becomes due and payable

6. Interest: Interest calculation method, payment frequency, and default interest provisions

7. Conversion Rights: Terms and conditions for converting the note into equity

8. Conversion Price: Formula or fixed price for conversion and any adjustments

9. Qualifying Financing: Definition and terms of qualifying financing triggering automatic conversion

10. Representations and Warranties: Statements of fact by the issuer and noteholder

11. Events of Default: Circumstances constituting default and consequences

12. Amendment and Waiver: Procedures for modifying the note terms

13. Transfer Restrictions: Limitations on transferability of the note

14. Notices: Communication requirements and contact details

15. Governing Law and Jurisdiction: Swiss law application and jurisdiction provisions

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

1. Security: Include when the note is secured by company assets

2. Subordination: Include when the note is subordinated to other company debt

3. Most Favored Nation: Include to ensure noteholder receives best terms offered to other investors

4. Information Rights: Include when investor requires specific company information access

5. Board Observer Rights: Include when investor is granted board observation rights

6. Pre-emptive Rights: Include when investor gets rights to participate in future financings

7. Tag-Along Rights: Include when investor gets right to participate in founders' share sales

8. Change of Control: Include specific provisions for company sale scenarios

9. Currency Conversion: Include for notes issued in non-Swiss franc denominations

What schedules should be included in a Convertible Promissory Note?

1. Form of Conversion Notice: Template for noteholder to exercise conversion rights

2. Cap Table: Current capitalization table of the company

3. Calculation of Conversion Price: Detailed formula and examples of conversion price calculation

4. Corporate Documents: Relevant corporate resolutions and authorizations

5. Investment Representations: Detailed investor representations and warranties

6. Security Documents: If applicable, documents detailing security arrangements

7. Subordination Agreement: If applicable, agreement with senior creditors

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

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A Swiss law-governed acknowledgment of debt that creates a legally binding obligation for repayment of a specified sum of money.

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What is a Convertible Promissory Note?

What sections should be included in a Convertible Promissory Note?

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

What schedules should be included in a Convertible Promissory Note?

Authors

Alex Denne

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