Convertible Note Purchase Agreement Template for Hong Kong

A Convertible Note Purchase Agreement is a sophisticated financing document that allows Hong Kong companies to raise capital through debt instruments that can later convert into equity shares. This hybrid security combines the certainty of debt with the potential upside of equity ownership, making it an attractive option for both companies seeking flexible financing and investors looking for conversion opportunities under Hong Kong law.

When do you need this document?

You need this agreement when your Hong Kong company requires interim financing before a formal equity round, or when you want to defer complex valuation negotiations while securing immediate capital. It's particularly useful for startups and growth-stage companies that need bridge financing to reach key milestones, such as product development completion or revenue targets. The document is also essential when existing investors want to provide additional funding on favorable terms, or when you're conducting a pre-Series A funding round with multiple investors who prefer the flexibility of convertible securities.

Key legal considerations

The agreement must clearly define conversion mechanics, including conversion triggers, pricing formulas, and anti-dilution protections to prevent disputes during conversion events. Interest rate provisions should comply with the Money Lenders Ordinance (Cap. 163) if applicable, while ensuring the debt component doesn't inadvertently create money lending licensing requirements. Conversion rights must be structured to comply with the Companies Ordinance share capital provisions and any existing shareholders' agreements. You should address maturity dates, default provisions, and investor rights carefully, as these terms significantly impact both company obligations and investor protections. Security provisions, if included, require proper registration and trustee appointments under Hong Kong law.

Legal requirements in Hong Kong

Under the Companies Ordinance (Cap. 622), the agreement must comply with share capital maintenance rules and may require special resolutions for certain conversion scenarios. The Securities and Futures Ordinance (Cap. 571) governs the offering process, particularly if the notes constitute securities requiring prospectus disclosure or regulatory exemptions. Director duties under the Companies Ordinance require proper board resolutions and consideration of shareholders' interests when approving convertible note terms. The agreement should address stamp duty implications under the Stamp Duty Ordinance, particularly for secured notes or those with equity-like features. Transfer restrictions must comply with Hong Kong securities transfer regulations, and any security provisions require compliance with registration requirements to ensure enforceability against third parties.