Document background
The Loan Conversion To Equity Agreement is a sophisticated financing instrument used when a company seeks debt financing with the potential for future equity participation by the lender. This document is particularly relevant in the Canadian business context where companies aim to secure immediate funding while offering investors the flexibility to become shareholders. The agreement typically includes detailed provisions about the initial loan terms, specific triggers for conversion (such as qualified financing rounds, maturity, or company sale), conversion price calculations, and the nature of equity rights post-conversion. It must comply with Canadian federal and provincial securities regulations, corporate law requirements, and relevant tax provisions. This type of agreement is commonly used in growth-stage companies, restructuring scenarios, or when traditional equity investment might be premature but remains a desirable future outcome.
