Bellerage Quarterly 2/21: New way to invest in Russian companies thanks to convertible loans

In June 2021, a law on convertible loans was passed, which should speed up investment processes.

An investor can now contribute funds to a project in the early stages in form of a loan and later have either the funds returned with interests, or re-qualify them as company shares.

A convertible loan agreement requires unanimous approval from the general meeting of shareholders or members of the company. The decision whether to increase capital must already be made at the stage of concluding the contract, thereby reserving shares for the investor.

When signing a convertible loan agreement, consider the following:

• If the borrower is an LLC, the contract must be notarized
• The agreement must contain the terms or conditions under which the investor has the right to demand the conversion of the loan
• In the agreement, it is necessary to establish the price of placement of additional shares for JSC or the amount of increase in the Charter capital for LLC
• The investor can submit a conversion request within 3 months from the date the loan is due or the conditions for conversion are met

At the same time, both non-credit financial institutions and credit institutions cannot attract a convertible loan.
For more information about the most prominent changes in Russian business legislation - read Bellerage Quarterly