Fundraising & Equity generatorUAE · DIFC
Convertible Loan Note Instrument (DIFC)
A convertible loan (note) for a DIFC company under DIFC law. The investor lends money that accrues interest and converts to shares on a future round, at maturity, or on an exit.
What is a Convertible Loan Note Instrument?
A Convertible Loan Note Instrument (DIFC) is a convertible loan (note) for a DIFC company under DIFC law. The investor lends money that accrues interest and converts to shares on a future round, at maturity, or on an exit.
A DIFC startup raising debt that converts to equity, and investors who want interest and a maturity backstop, which a SAFE does not offer. Structured as a loan under the DIFC Law of Obligations and converting under DIFC Companies Law.
Convertible Loan Note Instrument template, current for 2026
Interest, maturity, and conversion mechanics are built on DIFC law, a profit-rate framing note serves Shari'ah-sensitive investors, and the forum is the DIFC Courts or DIAC.
How HDAi does this differently
Unlike a static form, HDAi runs a guided interview and assembles your Convertible Loan Note Instrument as you answer. When you want it finished, a licensed Hart David Carson attorney reviews it and tailors it to your facts before you sign. The interview and the first draft are automated. The judgment belongs to an attorney.
What you’ll be asked
A short interview in plain language that asks only what this document needs.
- What is the date of this Convertible Loan Note Instrument? The execution date shown on the front page and used throughout the instrument.
- Who is the Company (the borrower issuing the notes)? The DIFC company that receives the loan and will issue shares on conversion. Give full legal name, registration number and registered office.
- What is the Company's DIFC / ROC registration number? The registration number assigned by the DIFC Registrar of Companies; identifies the issuer on the register.
- What class of shares does the Company currently have in issue? Sets the baseline capital structure and the reference point for conversion pricing.
- Who is the Investor (the noteholder / lender)? The person or fund lending the money and receiving the note. Full legal name and address for the register of noteholders and notices.
- Is this a single-investor note or an instrument constituting a series of notes for multiple investors? Determines whether we include noteholder-majority mechanics, a register, and pari passu ranking among a series.
- What percentage of the outstanding principal constitutes the 'Majority Noteholders' for consents and waivers? The threshold at which noteholders can bind the series (waivers, amendments, acceleration).
- What is the principal amount of the loan (per this instrument)? The aggregate amount advanced and repayable/convertible; the base for interest and conversion.
- What currency is the loan denominated in? DIFC transactions are commonly USD-denominated; drives all monetary references.
- Is the return structured as conventional interest or as an agreed profit amount for Shari'ah-sensitive parties? Selecting the profit-rate basis reframes the return as a 'Profit Amount' on a commodity-neutral (murabaha-style) footing rather than as riba/interest, and adds a short structural note. This is a drafting convention; a qualified Shari'ah adviser should confirm any Shari'ah-compliance claim.
- How is the principal advanced? Controls whether we include a tranche/drawdown schedule and conditions to funding.
- By what date must the Investor advance the principal? A funding longstop protects the Company; failure to fund can void the note.
- Describe the tranches and the conditions to each drawdown. We reproduce this as the drawdown schedule so funding obligations are precise.
- How is the accrued return dealt with? The interest or Profit Amount either forms part of the conversion amount or stands as a cash liability. This answer picks which.
- What is the interest rate per annum? The rate at which interest accrues on the outstanding principal until repayment or conversion.
- What is the agreed profit rate per annum (used to compute the Profit Amount)? The annualised rate used to calculate the agreed Profit Amount payable in addition to the Principal. Framed as an agreed return rather than interest/riba.
- On what day-count basis does the return accrue? Sets the accrual convention so the calculation is unambiguous.
- What default rate applies to overdue amounts (in addition to or in place of the ordinary rate)? A higher rate that runs on any amount not paid when due; leave blank to apply the ordinary rate. On a profit-rate note this is framed as agreed late-payment compensation, not interest.
- What is the Maturity Date (the longstop for repayment or conversion)? The date on which, absent an earlier conversion event, the note falls due for repayment or maturity conversion.
- What happens at the Maturity Date if no qualifying financing has occurred? Defines the fallback outcome so the note cannot sit unresolved past maturity.
- What minimum new-money amount makes an equity financing a 'Qualified Financing' that triggers automatic conversion? An equity round at or above this size auto-converts the note; below it, conversion is usually optional.
- For cap pricing, is the Company's Fully-Diluted Basis measured before or after the Qualified Financing new money? This is the single most-litigated number in a capped note. 'Before' (pre-money fully-diluted) generally gives the Investor more shares; 'after' folds the new round shares into the denominator. Keep this consistent with the pre/post cap answer.
- Does the Fully-Diluted Basis include the unallocated (and any topped-up) option pool? Including the full authorised and topped-up option pool enlarges the denominator, which lowers the Cap Price and favours the Company; excluding unissued pool favours the Investor. Market practice on a capped note is usually to include it.
- How is the conversion price determined on a Qualified Financing? (select all that apply) These are the core economics of a convertible; most notes use a discount, a cap, or the lower of the two.
- What is the conversion discount? The percentage reduction off the round price the Investor's converted amount buys shares at.
- What is the valuation cap? The maximum company valuation used to price the Investor's conversion, protecting early-money upside.
- Is the valuation cap a pre-money or post-money figure? Pre- vs post-money materially changes the Investor's resulting ownership; must be explicit and consistent with the Fully-Diluted Basis measurement point.
- What class of shares does the note convert into on a Qualified Financing? Usually the security issued to the new round investors; defines the shares delivered on conversion.
- If the note converts at maturity (no qualifying round), at what valuation does it convert? Sets the conversion price for a maturity conversion where there is no round price to reference.
- May the Investor voluntarily convert on a non-qualifying (smaller) equity financing? Gives the Investor optionality to join a smaller round rather than wait.
- If the Company cannot procure the share issue on an automatic conversion, at what premium multiple of the Outstanding Amount does it become immediately repayable? A self-help remedy so the Investor is not stranded with a cancelled note and no shares. A modest premium (e.g. 1.25x to 2x) is typical to compensate for the lost equity upside.
- What happens on an Exit (sale of the Company or its business, or an IPO/listing) before conversion or maturity? An exit before a round is a common trigger. This sets what the Investor takes on one: cash, a multiple, or shares.
- What premium multiple of principal applies on an Exit (e.g. 1.5x, 2x)? The cash multiple the Investor receives on exit in lieu of, or as an alternative to, conversion.
- How are taxes and any withholding on payments to be treated? For a cross-border DIFC loan note this allocates withholding-tax risk. A gross-up shifts the risk to the Company (Investor receives the full amount); the alternative leaves the Investor to bear any lawful withholding.
- Should the Investor have a 'most favoured nation' right (to adopt more favourable terms given to later convertible investors)? Protects an early convertible investor if the Company later issues notes on better terms.
- Is the note secured or unsecured? Sets the ranking and whether we cross-refer to a security document.
- How does the note rank against the Company's other debt? Ranking drives recovery priority on insolvency and is often negotiated.
- May the Company prepay/redeem the note early? Convertibles usually restrict prepayment so the Investor keeps the conversion upside.
- Should the Investor receive information rights (accounts and updates) while the note is outstanding? Gives the Investor visibility into the Company during the loan period.
- Should the Investor have a pro-rata participation right in the Qualified Financing (beyond its converted stake)? Lets the Investor invest further to maintain its ownership percentage in the round.
- Who bears the Investor's reasonable legal and due-diligence costs of the note? On institutional cheques the Company often bears the Investor's reasonable, capped costs; on smaller notes each side bears its own.
- May the Investor transfer the note? Controls who can end up holding the note and the resulting conversion shares.
- How extensive should the Company warranties be? Warranties allocate risk on the state of the Company at issue; expanded suits larger cheques.
- What law governs the instrument? DIFC law is the natural choice for a DIFC company; drives the interpretation clause.
- Where are disputes resolved? Sets the enforcement forum; DIFC Courts or DIFC-seated arbitration are both common.
- Which arbitration rules and how many arbitrators? Following the 2021 dissolution of the DIFC-LCIA, DIAC administers DIFC-seated arbitration.
- Allow electronic signature and execution in counterparts? Electronic execution is valid under DIFC law and speeds up closing.
- Who signs for the Company (name and title)? The authorised signatory named in the Company's signature block.
- Who signs for the Investor (name and title)? The authorised signatory named in the Investor's signature block.
- Any bespoke or additional terms to include? Anything not captured above that should appear as a special condition.
Frequently asked
About the Convertible Loan Note Instrument and how HDAi works.
What is a Convertible Loan Note Instrument (DIFC)? +
A Convertible Loan Note Instrument (DIFC) is a convertible loan (note) for a DIFC company under DIFC law. The investor lends money that accrues interest and converts to shares on a future round, at maturity, or on an exit. It suits a DIFC startup raising debt that converts to equity, and investors who want interest and a maturity backstop, which a SAFE does not offer. It is structured as a loan under the DIFC Law of Obligations and converts under DIFC Companies Law.
Is HDAi's Convertible Loan Note Instrument (DIFC) legally binding? +
The Convertible Loan Note Instrument (DIFC) HDAi generates becomes binding once it is completed, reviewed, and properly signed. A Hart David Carson attorney reviews the commercial terms from a US-law perspective after a planning call and, because the instrument is governed by DIFC law, works with locally admitted counsel (quoted separately) before you sign.
Do I need a lawyer to use this Convertible Loan Note Instrument (DIFC)? +
Generating and downloading the Convertible Loan Note Instrument (DIFC) is free and takes minutes. If you want it finished, a licensed Hart David Carson attorney reviews the return structure, the cap mechanics, and the exit terms with you and coordinates with locally admitted DIFC counsel where the instrument needs it.
What makes this Convertible Loan Note Instrument (DIFC) current for 2026? +
Interest, maturity, and conversion mechanics are built on DIFC law, a profit-rate framing note serves Shari'ah-sensitive investors, and the forum is the DIFC Courts or DIAC.
How long does the Convertible Loan Note Instrument (DIFC) take? +
Estimated time about 25 min (50 questions), depending on how much you already know. The document assembles as you answer. Export it as PDF or Word, or send it to a Hart David Carson attorney for review.
Does this Convertible Loan Note Instrument (DIFC) work in the DIFC? +
Yes. This version is drafted for DIFC law and terminology. It is not a relabeled U.S. form. A licensed attorney coordinates with locally admitted counsel where required.
Other jurisdictions
The same document, drafted for another jurisdiction’s law.
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