Convertible Promissory Note for Pakistan

Convertible Promissory Note Template for Pakistan

A Convertible Promissory Note under Pakistani law is a debt instrument that combines features of both debt and equity financing. It represents a loan that can be converted into equity shares of the borrowing company upon specified triggering events, such as a qualified financing round or at maturity. The document is governed by Pakistani law, particularly the Contract Act 1872 and Companies Act 2017, and must comply with local securities regulations and Islamic banking principles. It includes detailed provisions for conversion mechanics, interest/profit calculations, and investor rights, while ensuring compliance with Pakistani foreign investment regulations when applicable.

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What is a Convertible Promissory Note?

A Convertible Promissory Note is commonly used in Pakistan's growing startup and scale-up ecosystem as a bridge financing instrument. This document is particularly useful when companies need immediate funding but face challenges in establishing a definitive valuation. The note allows investors to provide capital as a loan that can later convert into equity, typically at a discount to the next financing round's valuation. The document must be structured to comply with Pakistani law, including the Companies Act 2017, securities regulations, and where applicable, foreign investment rules. It typically includes terms for conversion triggers, valuation caps, discount rates, and interest/profit calculations, while ensuring alignment with Islamic banking principles that are relevant in the Pakistani context. The Convertible Promissory Note serves as a balanced instrument that protects both investor and company interests while providing flexibility in terms of future equity conversion.

What sections should be included in a Convertible Promissory Note?

1. Parties: Identification of the Lender and Borrower, including full legal names and addresses

2. Background: Context of the loan arrangement and purpose of the note

3. Definitions: Key terms used throughout the document, including 'Conversion Price', 'Maturity Date', 'Qualifying Financing', etc.

4. Promise to Pay: Core obligation to repay the principal amount with specified interest/profit rate

5. Interest/Profit Rate: Terms of interest/profit calculation and payment, ensuring compliance with Pakistani banking regulations

6. Conversion Rights: Terms and conditions under which the note may be converted into equity

7. Conversion Mechanics: Detailed process for executing the conversion, including notice requirements and share calculation

8. Maturity and Repayment: Terms regarding maturity date and repayment procedures

9. Events of Default: Circumstances constituting default and consequences thereof

10. Representations and Warranties: Standard assurances from both parties regarding capacity and authority

11. Governing Law and Jurisdiction: Specification of Pakistani law as governing law and relevant jurisdiction

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

1. Security: Include if the note is to be secured by any assets or guarantees

2. Foreign Investment Provisions: Required if the lender is a foreign entity, addressing exchange control and repatriation

3. Shareholder Rights Post-Conversion: Include if specific rights are to be granted upon conversion

4. Tax Provisions: Include detailed tax treatment if significant tax implications exist

5. Most Favored Nation: Include if the lender should benefit from better terms given to future note holders

6. Information Rights: Include if the lender requires specific financial reporting or information access

7. Pre-emptive Rights: Include if the lender should have rights in future financing rounds

What schedules should be included in a Convertible Promissory Note?

1. Schedule 1: Principal Terms: Key financial terms including principal amount, interest rate, maturity date

2. Schedule 2: Form of Conversion Notice: Template for the lender to exercise conversion rights

3. Schedule 3: Calculation of Conversion Price: Detailed methodology for determining share price upon conversion

4. Schedule 4: Corporate Information: Details of the borrower's corporate structure and share capital

5. Appendix A: Shareholders' Agreement Terms: Key terms to apply post-conversion, if applicable

6. Appendix B: Required Corporate Approvals: List of necessary corporate and regulatory approvals for conversion

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 | Serial Founder & Legal AI Author

Jurisdiction

Pakistan

Publisher

Genie AI

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant legal definitions
Relevant Industries

Technology

E-commerce

Financial Services

Healthcare

Education Technology

Software Development

Renewable Energy

Manufacturing

Telecommunications

Professional Services

Biotechnology

Retail

Agriculture Technology

Relevant Teams

Legal

Finance

Corporate Development

Investment

Compliance

Executive Management

Treasury

Corporate Secretarial

Risk Management

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Investment Manager

Corporate Lawyer

Company Secretary

Finance Director

Venture Capital Associate

Investment Banker

Legal Counsel

Corporate Finance Manager

Startup Founder

Business Development Director

Financial Controller

Compliance Officer

Investment Analyst

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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