Convertible Agreement Template for Malaysia

A Convertible Agreement lets early-stage investors provide funding to Malaysian startups in exchange for the right to convert their investment into equity shares later. It works like a loan that transforms into company ownership, typically when specific triggers occur, such as a major funding round or an IPO.

Under Malaysian securities law, these agreements help both parties navigate uncertain company valuations by postponing the actual share pricing until the business becomes more established. Investors get the benefit of conversion discounts or valuation caps, while startups maintain flexibility and avoid immediate equity dilution during their crucial growth phase.

Startups need Convertible Agreements when they're raising initial capital but can't yet determine a fair company valuation. This commonly happens during seed funding rounds in Malaysia's tech and innovation sectors, where growth potential remains uncertain but immediate funding is essential.

The agreement becomes particularly valuable when dealing with multiple small investors, as it simplifies the investment process and saves on legal costs. It's also ideal for bridge funding situations between major rounds, especially when the startup expects a significant valuation increase in the near future through an upcoming Series A round or strategic partnership.

• Convertible Loan Agreement: Basic form with straightforward loan-to-equity conversion terms, typically used by early-stage startups.
• Convertible Note Contract: Includes interest payments and maturity dates, popular among angel investors.
• Convertible Debt Agreement: More complex structure with detailed default provisions and investor protections.
• Compulsory Convertible Debentures Agreement: Mandatory conversion features, common in regulated industries.
• Convertible Bond Agreement: Corporate-focused version with tradable securities features, suited for larger companies.

• Startup Founders: Usually initiate the agreement when seeking early-stage funding without setting a firm valuation for their company.
• Angel Investors: Provide initial capital through these agreements, benefiting from potential equity conversion at favorable terms.
• Corporate Lawyers: Draft and customize the agreements to comply with Malaysian securities laws and protect both parties' interests.
• Investment Firms: Use these instruments for seed funding rounds, particularly in technology and innovation sectors.
• Company Directors: Must approve and execute these agreements as part of their corporate governance duties under Malaysian law.

• Company Details: Gather current share structure, existing shareholders' information, and company registration documents.
• Investment Terms: Define investment amount, valuation cap, discount rate, and conversion triggers.
• Timeline Planning: Set clear maturity dates, interest rates, and qualifying financing round thresholds.
• Stakeholder Input: Collect board approvals and existing investor consents required under Malaysian law.
• Legal Requirements: Our platform ensures compliance with Malaysian securities regulations while generating customized agreements.
• Document Review: Verify all conversion mechanics, anti-dilution provisions, and voting rights are clearly stated.

• Investment Terms: Principal amount, interest rate (if any), and clear conversion mechanisms under Malaysian securities law.
• Conversion Rights: Detailed triggers, valuation cap, discount rate, and share class post-conversion.
• Corporate Details: Company registration number, registered address, and authorized signatories.
• Default Provisions: Consequences of non-payment and remedies available to investors.
• Governing Law: Explicit reference to Malaysian law and jurisdiction for dispute resolution.
• Compliance Statements: Our platform automatically includes required Securities Commission Malaysia disclosures and filing requirements.

A Convertible Agreement differs significantly from a Bond Issuance Agreement in several key aspects, though both are investment instruments under Malaysian securities law. While both involve raising capital, their structures and purposes serve different business needs.

• Investment Structure: Convertible Agreements are typically simpler, shorter-term instruments used by startups, while Bond Issuance Agreements are more complex, formal debt instruments used by established companies.
• Conversion Rights: Convertible Agreements automatically convert to equity upon triggering events, whereas Bond Issuance Agreements generally remain as debt unless specifically structured as convertible bonds.
• Regulatory Requirements: Bond issuances face stricter Securities Commission Malaysia oversight and disclosure requirements compared to convertible agreements used in private funding rounds.
• Target Users: Early-stage companies prefer Convertible Agreements for flexibility, while larger corporations use Bond Issuance Agreements for structured fundraising with institutional investors.