Convertible Loan Agreement

A convertible loan agreement (CLA) is a unique investment tool. Essentially, it involves an investor providing money to a company with the option to later become a co-owner of that company or to have the investment returned as if it were a regular loan. Currently, the CLA is widely used throughout Russia as one of the main mechanisms for investing in business entities.

The CLA can be used both in venture investments, i.e., investing in a company at its earliest stages of development, and in investing in already stable projects. The primary goal of the CLA is to minimize investor risks. The process of converting loaned funds into a company's share is called conversion. Conversion occurs solely at the discretion of the lender (investor), and the grounds for conversion can be various circumstances, such as:

• Achieving a specific financial indicator;
• Product launch;
• Completion of government registration procedures;
• Initiation of a new investment round;
• Reaching an agreed-upon date, etc.

After conversion, the investor loses the right to loan repayment as the obligation is fulfilled by receiving a share, and the investment remains in the company.

In a CLA, the lender can be an individual or a legal entity, and there may be several lenders in each investment round. For example, three entities might invest in a startup at the seed stage. Different lenders can have different conversion conditions. Borrowers can be any legal entities except credit institutions, non-credit financial institutions, and strategically significant companies.

A CLA can include additional protection mechanisms, such as the personal liability of the director or participants/shareholders of the borrower in case they obstruct conversion.

One of the most complex and crucial tasks when implementing a CLA is calculating the share to be converted from the loan. It is important to avoid "dilution" of shares and to establish a correct mathematical formula for conversion.

"Usconsult" has extensive experience and provides qualified legal assistance to individuals and organizations in concluding and implementing convertible loan agreements.

Legal Support from Usconsult

The legal support of Usconsult's specialists will be relevant for you if you need to:

• Choose individual and safe conditions for the convertible loan agreement;
• Determine the circumstances that will constitute grounds for conversion;
• Agree with a business partner and conclude a partnership agreement;
• Check a counterparty for risks;
• Check the subject of the transaction for risks;
• Ensure the safety of the transaction and minimize all possible risks;
• Resolve disagreements when there is no unity with the counterparty on the form and conditions of the transaction, which cannot be resolved;
• Support a dispute in pre-trial and court proceedings;
• Provide comprehensive legal support for your activities at all stages;
• Consult on any legal issues of interest to you.

In our work, we always:

• Thoroughly study the legal framework and the specifics of the client's activities;
• Carefully examine the counterparties involved in the transaction for risks;
• Analyze potential risks and select ways to minimize them;
• Individually select conditions that best meet the needs and interests of the client, while ensuring the legal purity and safety of the transaction.

Our Experience

• Supporting large investment projects.
• Developing and concluding a series of convertible loan agreements in business entities.
• Developing convertible loan conditions for specific situations.

Why Choose Us?

"Usconsult" is a company with substantial experience—20 years in the legal services market, which helps us resolve any dispute with maximum benefit for the client. "Usconsult" combines knowledge in law and economics. We are "friends" with numbers and apply them in practice to enhance efficiency. "Usconsult" examines not only the legal but also the technical aspects of each case. Our lawyers are thoroughly versed in any topic, whether it be construction, design, land surveying, or tax calculations. This helps us be more effective for the benefit of your business.