Convertible Loan Note Agreement Template for Nigeria

A Convertible Loan Note Agreement is a sophisticated financing instrument that allows you to structure investments in Nigerian companies with both debt security and equity upside potential. This document creates a loan that can be converted into company shares under specific circumstances, making it particularly valuable when immediate equity valuation is challenging or when parties prefer to defer valuation discussions until a future funding round.

When do you need this document?

You need this agreement when investing in early-stage Nigerian companies where traditional equity investment may be premature due to valuation uncertainties. It's commonly used in bridge financing scenarios where companies need immediate capital while preparing for larger funding rounds. The document is essential when international investors want to enter the Nigerian market with downside protection, or when existing shareholders wish to provide additional funding without immediate dilution. It's also valuable for companies seeking growth capital while maintaining flexibility in their capital structure until achieving specific milestones or triggering events.

Key legal considerations

The agreement must carefully balance debt and equity characteristics to ensure compliance with Nigerian securities laws. Key provisions include conversion triggers such as qualified financing rounds, company exits, or maturity dates, along with valuation caps and conversion discounts that protect investor interests. Interest rates must comply with Central Bank of Nigeria guidelines, and security provisions may require registration with the Corporate Affairs Commission. The document should address investor rights during the loan period, including information rights, board representation, and protective covenants. Anti-dilution provisions and most favoured nation clauses protect investors from subsequent unfavorable terms, while repayment terms must account for potential company insolvency scenarios.

Legal requirements in Nigeria

Under the Companies and Allied Matters Act (CAMA) 2020, the agreement must comply with corporate lending restrictions and disclosure requirements. The Investment and Securities Act 2007 governs the securities aspects, particularly the conversion mechanism and any public offering implications. Companies must ensure adequate authorization through board and shareholder resolutions, with proper documentation filed with the Corporate Affairs Commission. Foreign investors must comply with Nigerian Investment Promotion Commission requirements and foreign exchange regulations. Security arrangements require registration under applicable personal property security laws, and the document must address tax implications under Nigerian tax legislation. Interest payment obligations must align with withholding tax requirements, and conversion terms must comply with share issuance procedures under CAMA 2020.