Is an electronic signature valid on a convertible note?

Yes. Electronic signatures are generally enforceable under the federal ESIGN Act (15 U.S.C. ch. 96) and state UETA laws, provided intent, consent, attribution, and record retention requirements are met. Exceptions such as wills or certain court filings may still require paper signatures.

Do I need a notary or witnesses?

Notarization or witness requirements depend on state law and the document's terms. Most states do not require a notary for a convertible note; real estate instruments often do. For remote online notarization, follow state RON rules and retain audio-video records when required.

What happens if conversion conditions are not met?

If conversion conditions are not satisfied by maturity, the note typically remains payable as debt and may accrue interest; investors can demand repayment or negotiate extensions. Terms vary by agreement; consult counsel to assess default remedies and enforcement options under contract law.

Can I use an e-signature platform for execution?

Yes. Platforms that comply with ESIGN and UETA provide valid execution when they capture signer intent, consent, attribution, and an audit trail. For consumer financial or healthcare transactions, ensure consumer disclosure and access verification per 15 U.S.C. §7001 and applicable federal rules.

How should I record the note on the cap table?

Record the note as convertible debt with principal amount, accrued interest, cap, discount, maturity date, and conversion trigger. Show pro forma equity assuming conversion scenarios to illustrate dilution. Update the cap table after conversion or upon closing of the priced round.

When should I seek legal or tax advice?

Seek counsel before finalizing terms, when valuation caps or investor side letters are complex, prior to issuing notes that may implicate securities law, or to confirm tax treatment. Legal and accounting review reduces enforcement risks and clarifies 409A, securities, and withholding obligations.

Electronic Signature
Templates
Finance
Convertible Note Agreement

Convertible Note Agreement

This template is fully customizable. Edit the text, fill out the fields, and send it for signature. Give it a try!

CONVERTIBLE NOTE AGREEMENT

This Convertible Note Agreement (this "Agreement") is made and entered into as of Effective Date: by and between the following parties.

Parties

Company Name Company Address Investor Name Investor Address

Purchase and Note Terms

Principal Amount: $ Interest Rate (per annum): Maturity Date:

This Note evidences the obligation of the Company to pay to the order of the Investor the Principal Amount and accrued interest, subject to the conversion provisions set forth below.

Conversion Terms

Conversion upon Qualified Financing. In the event the Company closes an equity financing (a "Qualified Financing") resulting in aggregate gross proceeds to the Company of at least $, the outstanding Principal Amount and accrued but unpaid interest shall automatically convert into the shares issued in such financing on the terms set forth herein.

Conversion Price. Upon conversion pursuant to a Qualified Financing, the outstanding Principal Amount and accrued interest shall convert at the lesser of (a) a price per share equal to the price paid by investors in the Qualified Financing reduced by a discount of , or (b) the price per share implied by a valuation cap of $ on a fully diluted basis.

Optional Conversion. If no Qualified Financing has occurred prior to the Maturity Date, the Investor may elect to convert outstanding Principal Amount and accrued interest into the Company's capital stock at a price determined by mutual written agreement or, absent agreement, by reference to the Valuation Cap above.

Interest, Payments and Prepayment

Interest shall accrue on the unpaid principal at the rate set forth above, computed on the basis of a 365-day year and the actual number of days elapsed. Accrued interest shall be payable only upon conversion or at maturity unless otherwise agreed in writing.

Prepayment. Prepayment of the Note prior to conversion is permitted provided that any prepayment shall be subject to payment of all accrued interest to the date of prepayment and the prior written consent of the Investor is required unless otherwise provided in this Agreement.

Events of Default; Remedies

Events of Default shall include, without limitation, (a) failure by the Company to pay principal or interest within 30 days of when due, (b) insolvency, liquidation or bankruptcy of the Company, and (c) material breach of representations or covenants that is not cured within 30 days after written notice. Upon Event of Default, the Investor shall be entitled to exercise all remedies available at law or in equity, including acceleration of amounts due and specific performance to compel conversion in accordance with the terms hereof.

Representations and Warranties

Company Representations. The Company represents and warrants to the Investor that (i) it is duly organized and in good standing under the laws of its jurisdiction of formation, (ii) execution and delivery of this Agreement and the performance of its obligations hereunder have been duly authorized, and (iii) issuance of securities upon conversion will be duly authorized and, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable.

Investor Representations. The Investor represents and warrants to the Company that the Investor has full power and authority to execute and deliver this Agreement, that the Investor is acquiring the Note for investment purposes and not with a view to distribution, and that the Investor will comply with applicable securities laws in connection with any conversion or transfer.

Covenants; Negative Covenants

During the term of this Note, except with the prior written consent of the Investor holding a majority in interest of the outstanding principal and accrued interest, the Company shall not (i) incur indebtedness senior to this Note, (ii) amend its organizational documents in a manner materially adverse to the Investor, or (iii) authorize any equity securities senior to those into which this Note converts.

Notices

All notices, requests, consents and other communications hereunder shall be in writing and delivered to the addresses below (or such other address as a party may designate in writing).

Company Notice Address Company Contact Email Investor Notice Address Investor Contact Email

Miscellaneous

Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of , without regard to conflicts of law principles.

Amendment and Waiver. Any term of this Agreement may be amended or waived only with the written consent of the Company and the Investor holding at least a majority in interest of the outstanding principal and accrued interest.

Additional Terms and Conditions

Acknowledgment

The parties acknowledge that they have read and understood the terms of this Agreement, that they have had the opportunity to consult with counsel, and that they intend to be legally bound by its terms.

Company:

By:

Date:

Investor:

By:

Date:

What a Convertible Note Agreement Is and How It Works

The Convertible Note Agreement is a short-term debt instrument that startups use to raise capital with the intention that the loan converts into equity at a later priced financing round. It records principal, interest rate, maturity date, conversion terms, valuation cap, and discount provisions that govern how and when the debt becomes equity. Convertible notes allow investors to defer setting a valuation until a subsequent financing, simplifying early-stage fundraising and aligning incentives between founders and early backers while creating a contractual repayment obligation if conversion conditions are not met.

Why a Clear Convertible Note Agreement Matters

A Convertible Note Agreement streamlines early-stage fundraising by postponing valuation while documenting creditor rights, conversion mechanics, and investor protections. Proper drafting reduces ambiguity, limits securities-law exposure, and supports enforceability under ESIGN (15 U.S.C. ch. 96) and state UETA frameworks.

Who Prepares and Signs a Convertible Note Agreement

Common parties who prepare, review, or sign a Convertible Note Agreement include founders, angel investors, counsel, and finance teams.

Founders and executive teams negotiate terms and ensure cap table impact is documented.
Seed and angel investors assess conversion economics, protections, and exit scenarios.
Corporate counsel and accountants review securities, tax treatment, and compliance.

Use counsel for complex terms; maintain accurate records for tax reporting and future equity calculations.

Core Elements to Include in a Professional Convertible Note Agreement

Core elements of a professional Convertible Note Agreement clarify financial terms, conversion mechanics, investor protections, and remedies to ensure predictable treatment at the next financing round and legal enforceability.

Principal

State the exact loan amount, disbursement date, and any draw schedule. Clarify whether the principal is secured, subordinated, or pari passu with other obligations and how it accrues interest.

Interest

Specify the interest rate, compounding frequency, and whether unpaid interest converts into equity at conversion. Note tax treatment and accrual period for investor statements and reporting.

Maturity

Include maturity date, repayment terms if not converted, and provisions for extensions or defaults. Define remedies, acceleration events, and collateral, if any.

Conversion

Detail conversion triggers, price calculation, valuation cap, discount rate, pro rata rights, and conversion mechanics in financing or liquidation events. State how partial conversions are handled.

Protective Provisions

Enumerate investor protections such as information rights, board observer seats, anti-dilution provisions, transfer restrictions, and covenants that limit founder actions without investor consent, including major corporate decisions.

Securities Compliance

Include representations and warranties, specify applicable exemptions under federal securities law, and require investor accredited status or disclosures to reduce regulatory risk and local filings.

Step-by-Step: Completing a Convertible Note Agreement

Follow these steps to complete a Convertible Note Agreement accurately, including data entry, signatures, and delivery to investors or counsel.

01

Prepare: Gather company and investor legal names, contact details, and capitalization table snapshot.
02

Complete Terms: Specify principal, interest rate, maturity, conversion discount, and valuation cap precisely.
03

Execute: Signatures from authorized signers and dated signature blocks for all parties.
04

Distribute: Deliver executed copies to investors, update cap table, and retain originals.

Setting Up an Online Signing Workflow for the Note

Configure an e-signature workflow for the Convertible Note Agreement including signer order, authentication, and document retention settings.

Workflow Configuration Field Name Guide	Value or recommended configuration for this workflow field
Signer Execution Order and Routing	Sequential or parallel; include investor and founder signing order
Signer Authentication Method and Strength	Email link, SMS code, or KBA; use MFA for high-risk transactions
Document Fields, Validation, and Calculations	Add required fields, conditional logic, and format validation (dates, currency).
Retention and Audit Trail Settings	Set retention period, enable audit trail, and configure export formats.

Document Flow: From Draft to Record

Typical flow for creating, executing, and recording a Convertible Note Agreement from draft to investor delivery and records retention.

Draft: Prepare terms and attach exhibits with capitalization table.
Authorize: Obtain board and authorized signer approvals per bylaws.
Sign: Execute signed copies, note signature dates and signatory authority.
Record: Deliver executed copies to investors and update records.

Platform Requirements and Integration Considerations

Choose an eSignature platform that supports authenticated signing, audit trails, and exportable signed PDFs for legal admissibility and recordkeeping.

File Formats: PDF, DOCX, and HTML supported
Integrations: Salesforce, NetSuite, Google Workspace, Microsoft 365
Authentication: SSO, MFA, SMS code, KBA options

Security and Compliance Features to Expect

Encryption: TLS 1.2/1.3 in transit; AES-256 at rest

Certifications: SOC 2 Type II, ISO 27001, PCI DSS

HIPAA: Compliant with BAA available

Audit Trail: Detailed timestamps, IP, action log

eSignature Law: Compliant with ESIGN and UETA

Access Controls: SSO, MFA, role-based permissions

eSignature Vendor Comparison for Executing Convertible Notes

A brief vendor comparison of common eSignature features and starting prices for businesses evaluating platforms to execute Convertible Note Agreements.

	signNow	DocuSign	Adobe Sign	PandaDoc	HelloSign
Starting Price	$8/user/mo	$15/user/mo	$14/user/mo	$19/user/mo	$15/user/mo
Free Trial	Yes, 7-day trial	No	No	Yes, limited	Yes, limited
Bulk Send	Yes	Yes	Yes	Yes	No
Audit Trail	Yes	Yes	Yes	Yes	Yes
HIPAA Compliant	Yes	Yes	Yes	No	No

How Organizations Use Convertible Notes: Two Real Examples

Real-world scenarios illustrate how Convertible Note Agreements address early funding needs, simplify documentation, and impact capitalization at conversion.

Optica Ventures

Optica Ventures used a standardized Convertible Note template to speed investor onboarding and maintain consistent cap table records across multiple seed commitments.

Template reduced negotiation rounds and execution time.
By centralizing the template and audit trail, the team reduced legal review cycles, improved investor confidence in documentation accuracy, and avoided common post-closing reconciliation errors that had previously delayed subsequent financings.

Tech Data

Tech Data integrated digital note execution into its revenue workflows to track signed agreements and accelerate funding availability for strategic projects.

Integration improved turnaround and recordkeeping.
The integration reduced manual handling, centralized documents for audit purposes, and allowed finance teams to reconcile outstanding convertible instruments with cap table entries more accurately, improving reporting and reducing administrative overhead.

Practical Tips to Reduce Risk and Speed Execution

Practical tips to produce clear, enforceable Convertible Note Agreements and reduce negotiation and compliance friction.

Use precise conversion formulas and examples

Specify calculation steps for conversion price, rounding rules, treatment of accrued interest, and examples showing conversion in plausible financing scenarios to avoid ambiguity that leads to disputes or costly corrections.

Align cap table expectations early

Model dilution under multiple conversion scenarios, disclose pro forma ownership before and after conversion, and obtain investor acknowledgment to prevent later disagreements about share counts and founder dilution.

Confirm securities compliance and filings

Document applicable exemptions, file necessary notices under state blue sky laws, and have counsel confirm investor accreditation and offering method to reduce regulatory exposure and potential rescission claims.

Retain a documented audit trail for each signing

Capture timestamps, IP addresses, authentication method, and complete execution PDFs. Maintain access logs and exportable records to satisfy ESIGN, UETA, and internal compliance or audit requirements. Store originals and signed copies in secure, access-controlled repositories.

Common Preparation Pitfalls to Avoid

Using vague conversion language that leaves valuation cap or discount undefined, causing disputes during priced rounds and protracted negotiations.
Failing to verify investor accreditation or reliance on incorrect exemptions, leading to securities-law compliance issues and potential rescission claims.
Neglecting to update cap table changes after conversion or debt forgiveness, which results in improper equity allocations and reporting errors.
Missing consumer disclosure when notes are offered to non-accredited retail investors; ESIGN consumer rules and state variations must be followed.

Penalties and Legal Risks from Incorrect Documentation

Late Filing Penalty: 1099 penalties: $60–$330+ per form (IRC §6721)

Intentional Disregard: $660+ per form, no maximum (IRC §6721)

I-9 Violations: $281–$2,789 per violation (8 CFR §274a.2)

Securities Risk: Unregistered sale exposure; consult counsel

Name Mismatch Risk: Incorrect TIN triggers backup withholding

Enforcement Risk: Debt repayment or litigation exposure

Timing Considerations and Reporting Milestones

Key timing considerations for Convertible Note Agreements from issuance, interest accrual, maturity, conversion, and reporting obligations under tax and securities rules.

Issuance Date and Effective Date:

Determine start for interest and maturity; use MM/DD/YYYY format.

Interest Accrual and Reporting:

Report imputed interest where applicable and track accrued amounts for investor statements.

Maturity and Repayment:

Maturity date triggers conversion or repayment actions per agreement.

Tax Reporting and Filing Deadlines:

Determine whether interest or forgiveness triggers reporting; consult tax advisor.

Securities Compliance, Filings, and Notices:

Check state blue sky filings and federal exemptions before issuing notes.

Key Milestones From Issuance Through Conversion

Milestones from issuance to conversion or repayment help stakeholders track obligations, investor rights, and administrative steps during the note lifecycle.

01

Draft and Approval

Prepare terms, secure board and investor approvals before issuance.

02

Funding Disbursement

Transfer principal funds and document receipt with dates.

03

Monitoring and Accruals

Track interest accrual, investor communications, and cap table impacts.

04

Conversion or Maturity

Execute conversion mechanics or repay principal per agreed terms.

Frequently Asked Questions About Convertible Note Agreements

Answers to common questions about execution, enforceability, and practical issues when using a Convertible Note Agreement.

Need help? Contact support

be ready to get more

Join over 28 million airSlate SignNow users

Sign Now