What is a Resolution to Approve Additional Fundraising with Convertible Notes?
A Resolution to Approve Additional Fundraising with Convertible Notes is a resolution passed by the director of the company for the second round of fundraising.
A convertible note acts as a short-term loan for startups to fund their projects. So, when the first round of fundraising is successfully conducted then it is time to grow or expand the business. To do that a company has to pass a resolution through the director known as “Resolution to Approve Additional Fundraising with Convertible Notes”.
How are funds issued through Convertible Notes?
A Convertible Note is a form of debt or investment and is used by businesses to raise money. They can do so either through Convertible Notes or Equity. Essentially a Convertible Note is a loan that turns into ownership in the company.
A Directors’ Resolution to Issue Convertible Notes is a resolution to be passed by the directors of a company to approve the issue of convertible notes. This document is for the issue of subsequent rounds of convertible notes of a company that already has a Convertible Note Instrument in place.
There are two options when using a Directors’ Resolution to Issue Convertible Notes:
if a meeting of the board of directors is convened to address the issue, use the Board Minutes to Issue Convertible Notes; or
if the board resolution will be passed by way of a written resolution, use the Written Board Resolution to Issue Convertible Notes.
What is in a Directors Resolution to Approve Additional Fundraising with Convertible Notes?
In most jurisdictions, a simple majority of directors of the company must approve a Directors’ Resolution to Approve Fundraising with Convertible Notes. Additionally, the resolution must contain the following:
Details of the meeting (if using Board Minutes): 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 be lending money and be issued for the convertible note.
The 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.
- Details of the meeting (if using Board Minutes);
- Date of passing the resolution;
- Details of the investor(s);
- Principal amount of subscription; and
- Company proposal to execute a Convertible Note Instrument.
Notes on signing
- The Board Minutes to Issue Convertible Notes should be signed by the chairperson of the meeting.
- The Written Board Resolution to Issue Convertible Notes should be signed by all the directors.
Conclusion
A Convertible Note helps any business to issue funds and start their business. When the first round of fundraising is successfully conducted and the business needs to grow and expand, the company needs a resolution from the director which is known as a Director’s Resolution to Approve Additional Fundraising with Convertible Notes.
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