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Directors’ Resolution to Approve Fundraising FAQs

A Directors’ Resolution to Approve Fundraising with Convertible Notes is a form of short-term debt that converts into equity. 

This could include issuing new shares, taking out loans, launching a crowdfunding campaign, or seeking venture capital or private equity investments, among other activities.

Usually, it is of use in a fundraising event, allowing investors to provide a loan to the company in exchange for shares in the company versus principal and interest and future repayment.

Basically, this template is a Directors’ Resolution to authorise an issue of convertible notes in a fundraising event. 

What are convertible notes?

Convertible notes are short-term debt that converts into equity, typically in conjunction with a future financing round.

In essence, the investor loans money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company.

What is in a Directors’ Resolution to Approve Fundraising with Convertible Notes?

The resolution affirms the board’s approval of the fundraising strategy, which can involve selling equity, increasing debt, or exploring other financing options.

The specifics of the fundraising initiative, such as the amount to be raised, the means of raising it, and the purpose of the funds, are usually outlined in the resolution.

A simple majority of company directors must approve a Directors’ Resolution to Approve Fundraising with Convertible Notes. 

Additionally, the resolution must contain the following:

Details of the approval meeting 

A short statement describing when and where the meeting was held.

Date of passing the resolution

When this resolution was passed.

Details of the investor(s)

Information regarding the investors who will lend the money

Principal amount of subscription

Amount of the note that will be issued.

Company proposal to execute a Convertible Note Instrument

The company must provide details on how the note will be provisioned and the terms of the instrument.

When Should You Use a Directors’ Resolution to Approve Fundraising with Convertible Notes?

Usually, if a board of directors meeting convenes to address the issue, use the Board Minutes to Issue Convertible Notes. Or, if the board resolution passes through a written resolution, use the Written Board Resolution to Issue Convertible Notes.

Things to know about a Convertible Note:

  • Only Startup companies can issue a convertible note. 
  • They are an instrument that acts as evidence of receipt of money initially received as debt.
  • A certain minimum amount of investment is required for a Convertible Note.
  • Convertible Notes can be repaid in monetary value, or they can be converted into equity shares of the startup company.
  • Repayment or conversion needs to take place within five years from the date of its issue. 

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