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UK Convertible Loan Note (CLN)
Draft a UK Convertible Loan Note instrument for an early-stage or growth-stage UK company. Includes the strict FSMA 2000 s.21 financial promotion compliance framework with FPO 2005 exemption coverage (art.48 HNW / art.50A sophisticated / art.43 existing member / art.49 corporate), discount + valuation cap conversion mechanics on Qualified Financing trigger, PIK or cash interest, maturity provisions, and — in Expert mode — information rights, pre-emption under Companies Act 2006 s.561, warranties, default events, acceleration on default, MFN (most-favoured-nation) clause, and CTA 2009 loan relationship tax position.
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CONVERTIBLE LOAN NOTE INSTRUMENT
Nimbus Robotics Limited (Company No. 14025687) · Companies Act 2006 + FSMA 2000 FPO 2005 · 4 June 2026
COMPANY (ISSUER)
Nimbus Robotics Limited (Company No. 14025687)
Kennet House, 24 Riverside Way, Cambridge CB5 8HN
INVESTOR (NOTEHOLDER)
Mr Charles Reginald Buxton
12 Carrington Mews, Notting Hill, London W11 4HG
Principal £250,000 · Rate 6% PIK
Maturity 4 December 2027
THIS CONVERTIBLE LOAN NOTE INSTRUMENT is made on 4 June 2026 between Nimbus Robotics Limited, a company incorporated in England and Wales (Company No. 14025687), of Kennet House, 24 Riverside Way, Cambridge CB5 8HN (the "Company") and Mr Charles Reginald Buxton, a certified high net worth individual under article 48 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, of 12 Carrington Mews, Notting Hill, London W11 4HG (the "Investor").
The Investor agrees to subscribe for a convertible loan note (the "Note") of £250,000 on the terms set out below. The Note is issued in compliance with the financial promotion framework under section 21 of the Financial Services and Markets Act 2000 and the relevant exemptions in the Financial Promotion Order 2005.
The Investor agrees to subscribe for a convertible loan note (the "Note") of £250,000 on the terms set out below. The Note is issued in compliance with the financial promotion framework under section 21 of the Financial Services and Markets Act 2000 and the relevant exemptions in the Financial Promotion Order 2005.
1. Principal and interest. The Investor advances the principal sum of £250,000 to the Company on the date of this Instrument. Interest accrues at 6% per annum on the principal balance, payable in kind by addition to the principal (PIK) on each anniversary of the date of this Instrument.
2. Maturity. The Note matures on 4 December 2027. Unless previously converted, repaid, or accelerated in accordance with this Instrument, the outstanding principal and accrued interest become repayable on the maturity date.
2. Maturity. The Note matures on 4 December 2027. Unless previously converted, repaid, or accelerated in accordance with this Instrument, the outstanding principal and accrued interest become repayable on the maturity date.
3. Conversion mechanics.
3.1 Qualified Financing. On the occurrence of a Qualified Financing — being an equity financing of the Company raising aggregate proceeds of at least £1,000,000 — the outstanding principal and accrued interest of the Note shall automatically convert into the equity securities issued in the Qualified Financing at the lower of: (a) the price per share in the Qualified Financing less the 20% discount; or (b) the price per share calculated by reference to the £8,000,000 pre-money valuation cap.
3.2 Conversion on Maturity. If no Qualified Financing has occurred by the maturity date, the Note converts on the maturity date at the valuation cap of £8,000,000 (with appropriate share class determined by the Board).
3.3 Conversion on Exit. On an Exit Event (sale of the Company, IPO, or change of control) prior to the maturity date, the Investor may elect, at its option, to receive (a) repayment of principal and accrued interest in cash; or (b) the equity value at the lower of the discount and cap as if a Qualified Financing had occurred immediately prior to the Exit.
3.1 Qualified Financing. On the occurrence of a Qualified Financing — being an equity financing of the Company raising aggregate proceeds of at least £1,000,000 — the outstanding principal and accrued interest of the Note shall automatically convert into the equity securities issued in the Qualified Financing at the lower of: (a) the price per share in the Qualified Financing less the 20% discount; or (b) the price per share calculated by reference to the £8,000,000 pre-money valuation cap.
3.2 Conversion on Maturity. If no Qualified Financing has occurred by the maturity date, the Note converts on the maturity date at the valuation cap of £8,000,000 (with appropriate share class determined by the Board).
3.3 Conversion on Exit. On an Exit Event (sale of the Company, IPO, or change of control) prior to the maturity date, the Investor may elect, at its option, to receive (a) repayment of principal and accrued interest in cash; or (b) the equity value at the lower of the discount and cap as if a Qualified Financing had occurred immediately prior to the Exit.
4. Information rights and pre-emption.
4.1 Quarterly management accounts: The Company shall provide the Investor with quarterly management accounts within 30 days of each quarter end.
4.2 Annual audited accounts: The Company shall provide audited annual accounts within 90 days of the financial year end.
4.3 Pre-emption on conversion: On conversion, the Investor is entitled to maintain its percentage interest in subsequent equity issuances of the Company by participating in pre-emption rounds on a pro rata basis, in accordance with the pre-emption framework in section 561 of the Companies Act 2006.
4.4 Warranties given by the Company: The Company warrants that, at the date of this Instrument, (a) the Company is duly incorporated and validly existing under the laws of England and Wales; (b) the Company has full power and authority to enter into this Instrument; (c) the Company has not been the subject of any insolvency proceedings; (d) all material litigation has been disclosed in writing to the Investor; and (e) the audited accounts most recently filed at Companies House present a true and fair view of the financial position of the Company.
4.1 Quarterly management accounts: The Company shall provide the Investor with quarterly management accounts within 30 days of each quarter end.
4.2 Annual audited accounts: The Company shall provide audited annual accounts within 90 days of the financial year end.
4.3 Pre-emption on conversion: On conversion, the Investor is entitled to maintain its percentage interest in subsequent equity issuances of the Company by participating in pre-emption rounds on a pro rata basis, in accordance with the pre-emption framework in section 561 of the Companies Act 2006.
4.4 Warranties given by the Company: The Company warrants that, at the date of this Instrument, (a) the Company is duly incorporated and validly existing under the laws of England and Wales; (b) the Company has full power and authority to enter into this Instrument; (c) the Company has not been the subject of any insolvency proceedings; (d) all material litigation has been disclosed in writing to the Investor; and (e) the audited accounts most recently filed at Companies House present a true and fair view of the financial position of the Company.
5. Default events, acceleration, and MFN.
5.1 Default events: (a) non-payment of any sum due under this Instrument for 14 days after due date; (b) breach of any material covenant or warranty for 30 days after written notice; (c) commencement of any insolvency proceedings against the Company; (d) cessation of business by the Company; (e) any material adverse change in the financial condition of the Company that, in the reasonable opinion of the Investor, materially impairs the Company's ability to perform its obligations under this Instrument.
5.2 Acceleration: On the occurrence of any default event, the Investor may, by written notice, declare the Note to be immediately due and repayable, with interest accruing thereafter at the default rate of 6% + 4% per annum until paid in full.
5.3 Most-favoured-nation clause: If the Company issues any subsequent convertible loan note, convertible security, or advance subscription agreement on terms more favourable to the holder than those of this Note (whether by reference to discount, cap, interest rate, or otherwise), the Investor shall be entitled to such more favourable terms automatically.
5.1 Default events: (a) non-payment of any sum due under this Instrument for 14 days after due date; (b) breach of any material covenant or warranty for 30 days after written notice; (c) commencement of any insolvency proceedings against the Company; (d) cessation of business by the Company; (e) any material adverse change in the financial condition of the Company that, in the reasonable opinion of the Investor, materially impairs the Company's ability to perform its obligations under this Instrument.
5.2 Acceleration: On the occurrence of any default event, the Investor may, by written notice, declare the Note to be immediately due and repayable, with interest accruing thereafter at the default rate of 6% + 4% per annum until paid in full.
5.3 Most-favoured-nation clause: If the Company issues any subsequent convertible loan note, convertible security, or advance subscription agreement on terms more favourable to the holder than those of this Note (whether by reference to discount, cap, interest rate, or otherwise), the Investor shall be entitled to such more favourable terms automatically.
6. Financial promotion exemption and tax.
6.1 FSMA exemption. The communication and offer of this Note has been made in reliance on the exemption article 48 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 — certified high net worth individual (Form attached at Schedule 1) under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The Investor has provided the required certifications and acknowledgements. The Company is not authorised by the Financial Conduct Authority and the offer of the Note is not an offer of transferable securities to the public within the meaning of section 102B of the Financial Services and Markets Act 2000.
6.2 Loan relationship. The parties acknowledge that the Note constitutes a loan relationship for the Company within Chapter 3 Part 5 of the Corporation Tax Act 2009. Interest paid or PIK accrued is deductible by the Company as a trading expense subject to anti-avoidance provisions including the corporate interest restriction.
6.3 Legal advice. Both parties confirm that they have obtained independent legal advice in relation to this Instrument and the regulatory and tax consequences of the Note.
6.1 FSMA exemption. The communication and offer of this Note has been made in reliance on the exemption article 48 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 — certified high net worth individual (Form attached at Schedule 1) under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The Investor has provided the required certifications and acknowledgements. The Company is not authorised by the Financial Conduct Authority and the offer of the Note is not an offer of transferable securities to the public within the meaning of section 102B of the Financial Services and Markets Act 2000.
6.2 Loan relationship. The parties acknowledge that the Note constitutes a loan relationship for the Company within Chapter 3 Part 5 of the Corporation Tax Act 2009. Interest paid or PIK accrued is deductible by the Company as a trading expense subject to anti-avoidance provisions including the corporate interest restriction.
6.3 Legal advice. Both parties confirm that they have obtained independent legal advice in relation to this Instrument and the regulatory and tax consequences of the Note.
7. Governing law. This Instrument is governed by the law of England and Wales and the parties submit to the exclusive jurisdiction of the courts of England and Wales in relation to any dispute arising out of or in connection with it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date indicated.
SIGNED FOR AND ON BEHALF OF THE COMPANY
Dr Eleanor Margaret Forsyth
Chief Executive Officer and Director · 4 June 2026
Date: ____________________
SIGNED BY THE INVESTOR
Mr Charles Reginald Buxton
Investor · 4 June 2026
Date: ____________________
Available as a print-ready PDF or an editable Microsoft Word (.docx) file.
What Is a UK Convertible Loan Note?
A UK Convertible Loan Note (CLN) is a debt instrument issued by a UK company to an investor, under which the principal converts into shares (rather than being repaid in cash) on the occurrence of a defined trigger event — typically a qualifying equity financing round. CLNs are the standard "bridge" financing instrument in the British startup ecosystem, allowing a company to raise capital quickly without setting a valuation, and giving the investor the benefit of a discount or valuation cap on the eventual conversion price. CLNs are widely used between angel rounds and Series A in British growth companies.
The CLN regulatory framework is dominated by the financial promotion regime under <em>section 21 of the Financial Services and Markets Act 2000</em>. Inviting or inducing a person to invest in a UK company is a regulated activity, and the offer of a CLN must fall within one of the exemptions in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 — typically art.48 (certified high net worth individuals), art.50A (self-certified sophisticated investors), art.43 (existing members or creditors of the company), or art.49 (high net worth companies and unincorporated associations). The investor must provide the required certification BEFORE the offer is made — failure to comply is a criminal offence punishable by up to 2 years' imprisonment under section 25 FSMA 2000.
The standard UK CLN conversion mechanic is "lower of" — the investor converts at the LOWER of (a) the price per share in the qualifying financing less the agreed discount (typically 10-25%) or (b) the price per share calculated by reference to the valuation cap (typically £5-15 million at seed stage). This gives the investor the benefit of both: the discount rewards them for early investment risk; the cap protects them against runaway valuation increases. CLNs are NOT SEIS/EIS-compatible — for SEIS/EIS-compatible bridge funding, use an Advance Subscription Agreement (ASA) instead. CLNs ARE treated as a "loan relationship" for the issuer under Chapter 3 Part 5 of the Corporation Tax Act 2009 — interest is deductible against trading income (subject to anti-avoidance).
What's Covered in This Template
Our UK Convertible Loan Note template generates an FSMA 2000-compliant instrument with discount + valuation cap conversion mechanics.
Company + Director Signatory
UK company name, Companies House number, registered office, signing director with title.
Investor Classification (FPO 2005)
Certified HNW individual (art.48), self-certified sophisticated (art.50A), existing member (art.43), or corporate (art.49) — exemption from FSMA s.21 financial promotion restriction.
Principal + Interest
Principal sum, interest rate (5-8% typical UK), PIK or cash interest, maturity date (18-24 months typical).
Discount + Valuation Cap
Conversion at the LOWER of: (a) discount to qualifying financing price; or (b) valuation cap (typically £5-15m).
Qualified Financing Trigger
Equity round above stated threshold (typically £1m+) triggers automatic conversion at the lower of discount or cap.
Maturity Conversion (Optional)
If no qualifying financing by maturity, optional automatic conversion at valuation cap; otherwise cash repayment.
Exit Conversion Election
On exit prior to maturity, investor elects between cash repayment or equity conversion at the lower of discount or cap.
Information Rights (Expert)
Quarterly management accounts within 30 days, annual audited accounts within 90 days — standard UK CLN investor protection.
Pre-Emption CA 2006 s.561 (Expert)
Pre-emption on conversion under Companies Act 2006 s.561 — investor maintains percentage interest in subsequent equity rounds.
Default Events + Acceleration (Expert)
Non-payment 14 days, breach 30 days, insolvency, cessation, MAC — acceleration on default with default-rate interest.
MFN Clause (Expert)
Most-favoured-nation — Investor automatically entitled to better terms granted to subsequent CLN investors.
CTA 2009 Loan Relationship (Expert)
Tax position confirmed: issuer treats Note as loan relationship under CTA 2009 Chapter 3 Part 5; interest deductible subject to anti-avoidance.
How to Create a UK CLN
Follow these steps to draft an FSMA-compliant Convertible Loan Note.
- 1
Identify the Company and Classify the Investor
Enter the UK company name, Companies House number, registered office, signing director. Identify the investor and classify them under FPO 2005: certified HNW (art.48), self-certified sophisticated (art.50A), existing member (art.43), or corporate (art.49). The investor MUST provide the required certification BEFORE the offer is made.
- 2
Set Principal, Interest, and Maturity
Enter the principal sum, interest rate (typically 5-8%), PIK or cash, and maturity date (typically 18-24 months from issue). PIK is the UK norm for early-stage notes — interest accrues and is added to principal, converting together at the qualifying financing.
- 3
Set the Conversion Mechanics
Enter the conversion discount percentage (typically 10-25%), the pre-money valuation cap (typically £5-15m at seed stage), and the qualifying financing threshold (typically £1m+). Choose whether the Note also converts on maturity (if no qualifying financing has occurred) and whether the Investor has an election on exit.
- 4
Add Information Rights, Warranties, and Pre-Emption (Expert)
In Expert mode, add quarterly management accounts, annual audited accounts, pre-emption on conversion under CA 2006 s.561, and company warranties (incorporation, authority, insolvency, litigation, accounts true & fair). These are standard UK CLN investor protections.
- 5
Add Default Events, MFN, FSMA Exemption, and Tax (Expert)
In Expert mode, set out the default events (non-payment, breach, insolvency, MAC), acceleration on default with default-rate interest, MFN clause (most-favoured-nation), and explicit FSMA exemption citation. Confirm CTA 2009 loan relationship treatment for the issuer and independent legal advice obtained by both parties.
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Legal Considerations
UK CLN drafting is a regulated activity area — the FSMA 2000 + FPO 2005 framework is unforgiving and the tax position has specific anti-avoidance provisions.
This template is for informational purposes only and does not constitute legal, regulatory, tax, or financial advice. CLN issuance is a regulated activity under FSMA 2000 — consult a qualified UK corporate solicitor before issuing or subscribing for a Convertible Loan Note. Material CLN issuance, complex investor structures, or non-UK investors warrant specialist advice.
Reviewed for England & Wales FSMA 2000 + FPO 2005 + CTA 2009 framework
FSMA 2000 s.21 and FPO 2005 Exemptions
<strong>Section 21 of the Financial Services and Markets Act 2000</strong> prohibits any person, in the course of business, from communicating an invitation or inducement to engage in investment activity unless either (i) the person is authorised by the FCA, or (ii) the content is approved by an authorised person, or (iii) an exemption applies under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The key FPO 2005 exemptions for early-stage UK CLN issuance are: <em>art.48</em> (certified high net worth individuals — annual income of £170,000+ or net assets of £430,000+ excluding primary residence); <em>art.50A</em> (self-certified sophisticated investors — pre-existing investment experience self-certified annually); <em>art.43</em> (existing members or creditors of the company); <em>art.49</em> (high net worth companies and unincorporated associations). The investor MUST provide the required certification BEFORE the offer is made. Failure to comply with s.21 is a criminal offence punishable by up to 2 years' imprisonment under section 25 FSMA 2000.
Conversion Mechanics — Discount vs Cap "Lower Of"
The standard UK CLN conversion mechanic is "lower of": the Investor converts at the LOWER of (a) the price per share in the qualifying financing less the agreed discount (typically 10-25%); or (b) the price per share calculated by reference to the pre-money valuation cap. This gives the Investor the benefit of both protections: the discount rewards them for early investment risk; the cap protects them against runaway valuation increases. UK CLN typically include automatic conversion on a Qualified Financing (equity round above a stated threshold, typically £1m+), optional conversion on maturity, and an Investor election on exit. Pre-emption on conversion under Companies Act 2006 s.561 protects the Investor against dilution in subsequent equity rounds.
CTA 2009 Loan Relationship and Tax Position
For the issuer, a UK CLN is treated as a "loan relationship" under Chapter 3 Part 5 of the Corporation Tax Act 2009. Interest paid or PIK accrued is deductible by the company as a trading expense, subject to anti-avoidance including (a) the corporate interest restriction (CIR) under Part 10 Taxation (International and Other Provisions) Act 2010 — limiting interest deductions where group net interest exceeds £2 million; (b) anti-hybrid provisions under Part 6A TIOPA 2010; (c) thin capitalisation under transfer pricing rules. For the investor, interest is taxable as income (interest receipts); on conversion, shares are acquired at the conversion price with no immediate tax charge; on eventual sale, capital gains tax applies on the gain over the conversion price. Business Asset Disposal Relief (10% up to £1m lifetime limit) may apply on sale if the investor is also an officer or employee of the company.
CLN vs ASA vs SAFE — Choosing the Right Instrument
UK growth companies choose between three convertible instruments: (1) CONVERTIBLE LOAN NOTE (CLN) — debt; interest accrues; flexible terms; NOT SEIS/EIS-compatible; this template. (2) ADVANCE SUBSCRIPTION AGREEMENT (ASA) — equity subscription with future conversion; SEIS/EIS-compatible if structured correctly under ITA 2007 Pt 5 / 5A — no interest, no security, no refund, 6-month longstop. (3) SAFE (Simple Agreement for Future Equity) — US-style instrument; less commonly used in the UK but gaining traction; flexible but not SEIS/EIS-compatible. The choice depends on investor profile (institutional vs angel), tax preferences (SEIS/EIS critical), and commercial flexibility. CLN is the default for institutional / sophisticated investors; ASA is the default for SEIS/EIS-seeking angels.
Frequently Asked Questions
Draft Your UK Convertible Loan Note Now
Use our free template to draft a UK Convertible Loan Note compliant with FSMA 2000 s.21 + FPO 2005 exemption framework. Discount + valuation cap conversion, PIK interest, qualifying financing trigger, maturity and exit conversion, information rights, pre-emption, default events, acceleration, MFN clause, and CTA 2009 loan relationship tax position — all in one execution-ready instrument.
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