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  2. General FAQs about shares and equity

What are Convertible Loan Notes and Advance Subscription Agreements?

Convertible loan notes (“CLN”) and advance subscription agreements (“ASA”) are ways of companies getting a cash injection which may later convert into shares, rather than being paid back in cash. ASAs tend to be shorter agreements than CLNs and therefore involve less negotiation. 


A CLN is a type of loan that has the option to be converted into shares in the future, at an undetermined price which will be based on a future valuation of the company receiving the loan. Commonly, CLNs carry the right to be repaid in either shares or cash depending on the circumstances. Interest will usually accrue and be repaid on the loan.

Generally speaking, a CLN will convert into shares on the company’s next funding round (provided that the funding round meets any criteria specified in the agreement and is therefore a “Qualifying Financing Round”). The CLN could specify a maximum conversion price or a discount on the share price in the fundiung round. 

However, there may be circumstances, such as not having a Qualifying Financing Round within a specified period, in which the loan will instead be repaid in cash.

It should be noted that CLNs cannot be used to subscribe for EIS eligible shares.


While ASAs are similar to CLNs in that money is invested into a company prior to the receipt of shares, a significant difference is that an ASA will always result in the issue of shares (rather than the option to be repaid in cash). While a CLN is a loan, an ASA is an investment in shares which will be issued at a later date. 

When the shares are later issued (usually at the next Qualifying Financing Round), they will often be done so at a discounted price. The ASA will contain a longstop date at which point it will automatically convert into shares regardless of whether there has been a Qualifying Financing Round. The longstop date should not be more than 6 months from the date of the agreement if the intention is to issue (S)EIS eligible shares.

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