Convertible Loan Note (Malaysia)
CONVERTIBLE LOAN NOTE
Contracts Act 1950 (Act 136) | Companies Act 2016 (Act 777) | Stamp Act 1949 (Act 378)
THIS CONVERTIBLE LOAN NOTE is issued on [Issue Date]
BY:
[Company Name], a company incorporated under the Companies Act 2016, having its registered address at [Company Address] (the "Issuer" or "Company");
IN FAVOUR OF:
[Noteholder Name] of [Noteholder Address] (the "Noteholder").
1. LOAN
1.1 Subject to the terms and conditions of this Note, the Noteholder agrees to advance, and the Issuer agrees to accept, a principal loan of [Principal Amount] (the "Principal") on the date of this Note.
1.2 The Principal shall bear interest at the rate of [Interest Rate], calculated as simple interest from the date of advance until the date of conversion or repayment in full.
1.3 Unless earlier converted pursuant to Clause 3, the Issuer shall repay the outstanding Principal together with all accrued and unpaid interest on [Maturity Date] (the "Maturity Date").
2. STAMP DUTY
2.1 This Note shall be duly stamped by the Issuer under Item 27 of the First Schedule to the Stamp Act 1949 (Act 378) at the rate of RM5 per RM1,000 or part thereof of the Principal amount, within 30 days of execution.
2.2 Upon conversion of this Note into shares, the Issuer shall pay stamp duty on the allotment of shares under Item 32(b) of the First Schedule to the Stamp Act 1949 at 0.3% of the subscription consideration.
3. CONVERSION
3.1 Qualifying Financing Event: Upon the closing of a bona fide equity financing round in which the Company raises aggregate new investment of not less than [Qualifying Round Amount] from third-party investors (a "Qualifying Financing Event"), this Note shall automatically convert into [Share Class] of the Company at the Conversion Price.
3.2 Conversion Price: The Conversion Price shall be the lower of: (a) the price per share paid by new investors in the Qualifying Financing Event multiplied by (1 minus the Discount Rate of [Discount Rate]%); and (b) the price per share derived by dividing the Valuation Cap of [Valuation Cap] by the Company's fully diluted share count immediately prior to the Qualifying Financing Event.
3.3 Number of Shares: The number of shares to be allotted to the Noteholder on conversion shall equal the sum of the outstanding Principal plus all accrued interest divided by the Conversion Price, rounded down to the nearest whole share.
3.4 Allotment: The Company shall, within 10 Business Days of the Qualifying Financing Event closing, pass a board resolution under Section 75 of the Companies Act 2016 (Act 777) and allot the conversion shares to the Noteholder pursuant to Section 72 of the Companies Act 2016.
4. CHANGE OF CONTROL
4.1 If a Change of Control of the Company occurs before this Note is converted or repaid, the Noteholder shall be entitled to: [Change of Control Treatment]. A 'Change of Control' means the acquisition by a third party of more than 50% of the Company's issued shares, or a sale of all or substantially all of the Company's assets.
5. EVENTS OF DEFAULT
5.1 Each of the following constitutes an Event of Default: (a) the Issuer fails to repay the Principal and accrued interest on the Maturity Date and such failure continues for 14 days; (b) the Issuer passes a resolution for voluntary winding up; (c) a court orders the winding up of the Issuer under Section 465 of the Companies Act 2016 (Act 777); or (d) the Issuer commits a material breach of this Note and fails to remedy the breach within 30 days of written notice.
5.2 Upon an Event of Default, the outstanding Principal and all accrued interest shall become immediately due and payable, and the Noteholder may take such enforcement action as is available under the laws of Malaysia.
6. REPRESENTATIONS AND WARRANTIES
6.1 The Issuer represents and warrants that: (a) it is duly incorporated and validly existing under the Companies Act 2016; (b) the issuance of this Note has been authorised by a duly passed board resolution; (c) the execution and performance of this Note do not violate the Company's Constitution or any applicable law; and (d) the Company is not subject to any order of winding up, judicial management, or receivership.
7. GOVERNING LAW AND DISPUTE RESOLUTION
7.1 This Note is governed by and construed in accordance with the laws of Malaysia, including the Contracts Act 1950 (Act 136), the Companies Act 2016 (Act 777), and the Stamp Act 1949 (Act 378).
7.2 Any dispute arising out of or in connection with this Note that cannot be resolved by negotiation within 30 days shall be referred to arbitration under the Arbitration Act 2005 (Act 646) before the Asian International Arbitration Centre (AIAC) in Kuala Lumpur.
Issuer (authorised signatory)
________________
Signature
Noteholder
________________
Signature
What Is a Convertible Loan Note (Malaysia)?
A Convertible Loan Note in Malaysia fixes the principal, interest, and security on which credit is extended.
The Convertible Loan Note differs from a simple Convertible Note in that it is explicitly framed as a loan — the noteholder is a creditor of the issuer until conversion, giving the noteholder priority over shareholders in liquidation proceedings under the Insolvency Act 1967 (Act 360). Malaysian startups commonly issue Convertible Loan Notes to angel investors and venture capital funds participating in pre-seed rounds of RM200,000 to RM2,000,000 before a priced equity round establishes a company valuation.
Under the Stamp Act 1949 (Act 378), a Convertible Loan Note executed as a loan instrument attracts stamp duty at Item 27 of the First Schedule at RM5 per RM1,000 or part thereof of the principal amount. Upon conversion into shares, the allotment of shares triggers a further stamp duty obligation under Item 32(b) at 0.3% of the subscription consideration. The issuer's board must pass a resolution authorising the issuance of the note and the future allotment of shares under Section 75 of the Companies Act 2016.
A Convertible Loan Note issued to more than 50 persons, or offered to the public, may constitute a securities offering under the Capital Markets and Services Act 2007 (Act 671), requiring authorisation by Securities Commission Malaysia (SC) or reliance on a recognised exemption. For private placements to sophisticated investors defined under Schedule 6 and Schedule 7 of the Capital Markets and Services Act 2007, no SC prospectus approval is required. The Securities Commission Malaysia's Guidelines on Recognised Markets and Equity Crowdfunding (ECF) guidelines govern issuances made through SC-registered ECF platforms such as pitchIN or Ata Plus.
The legal framework governing the Convertible Loan Note (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Convertible Loan Note (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Financial Services Act 2013 (Act 758) sets the foundational requirements.
When Do You Need a Convertible Loan Note (Malaysia)?
A Convertible Loan Note in Malaysia is used whenever a company needs bridge financing that may later convert into equity rather than be repaid in cash.
A Convertible Loan Note is needed when a Malaysian technology startup seeks pre-seed or seed funding of RM300,000 to RM1,500,000 from angel investors or family offices before the company has sufficient trading history or traction to support a priced equity round valuation negotiation. The note defers dilution and valuation to a later Series A round.
A Convertible Loan Note is required when an existing investor in a Malaysian company provides bridge financing to extend the company's cash runway while a larger institutional funding round is being negotiated. Structuring the bridge as a note — rather than a pure loan or equity top-up — preserves the investor's conversion right at a discount to the incoming round price.
A Convertible Loan Note is needed when Cradle Fund Sdn Bhd, MAVCAP, or a corporate venture capital arm co-invests alongside an angel lead investor, matching the lead investor's Convertible Loan Note terms to simplify the cap table and avoid negotiating separate equity terms with each co-investor.
A Convertible Loan Note is required when a Malaysian company participating in the Malaysia Digital Economy Corporation (MDEC) Global Accelerator Programme or MaGIC accelerator raises a cohort round from programme-associated investors, using the note to align all investors on common conversion economics.
A Convertible Loan Note is needed when a foreign investor based in Singapore, Hong Kong, or the United Kingdom invests in a Malaysian company and requires a debt instrument with creditor protection — rather than a SAFE or subscription agreement — pending Foreign Investment Committee clearance or sector regulatory approval for direct equity ownership.
Parties in Malaysia should prepare a Convertible Loan Note (Malaysia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Convertible Loan Note (Malaysia)
A Malaysia Convertible Loan Note must include the following essential components to be legally sound and commercially effective.
Parties: Identify the issuing company with its full legal name and Companies Commission of Malaysia (SSM) registration number, and the noteholder with full name and NRIC or passport number. For corporate noteholders, include the SSM registration number and registered address.
Principal Amount: State the loan principal in Malaysian Ringgit (RM). Stamp duty under Item 27 of the First Schedule to the Stamp Act 1949 (Act 378) is assessed on this figure at RM5 per RM1,000.
Interest Rate: Specify whether interest accrues (typically 5–8% per annum simple interest) or whether the note is interest-free. Interest-free notes may raise deemed interest income concerns under Section 140A of the Income Tax Act 1967 (Act 53) for related-party transactions.
Maturity Date: State the maturity date — typically 18–24 months from the issue date. If no qualifying financing event occurs, the issuer must repay principal plus accrued interest at maturity, or the parties may agree to extend.
Qualifying Financing Event: Define the trigger for automatic conversion — usually a priced equity financing round raising a minimum aggregate consideration (e.g., RM3,000,000) led by a new institutional investor. Specify whether conversion is automatic upon closing of the qualifying round or requires a noteholder election.
Discount Rate: State the discount (e.g., 20%) applied to the qualifying round per-share price when calculating the conversion price. A 20% discount means the noteholder converts at 80% of the price paid by new investors, rewarding early-stage risk.
Valuation Cap: Set the maximum pre-money valuation at which the note converts. If the qualifying round values the company above the cap, conversion is calculated using the cap valuation, resulting in more shares per RM of principal for the noteholder.
Conversion Mechanics: Specify the formula for calculating conversion shares, the class of shares to be allotted (typically ordinary shares or preference shares), and the procedure under Section 72 of the Companies Act 2016 (Act 777) for the board resolution and allotment.
Change of Control: Address what happens on a company sale or deemed liquidation before the qualifying round — typically the noteholder receives the greater of principal plus interest, or the amount the noteholder would have received had the note converted at the cap.
Board Authority: Confirm that the board has passed a resolution under Section 75 of the Companies Act 2016 authorising issuance of the note and the future allotment of shares on conversion.
Additional compliance elements for a Convertible Loan Note (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
Cite this page
Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Convertible Loan Note (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/financial/agreements/convertible-loan-note-malaysia
"Convertible Loan Note (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/financial/agreements/convertible-loan-note-malaysia.
@misc{formslegal-convertible-loan-note-malaysia,
author = {{Forms Legal}},
title = {Convertible Loan Note (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/financial/agreements/convertible-loan-note-malaysia}},
note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
}Frequently Asked Questions
A Convertible Loan Note is legally binding in Malaysia under the Contracts Act 1950 (Act 136) as a contract between the issuer and the noteholder, provided it satisfies the elements of a valid contract: offer, acceptance, consideration, intention to create legal relations, and capacity of parties. The loan element creates a creditor-debtor relationship enforceable in the Malaysian courts, including the High Court of Malaya under Order 83 of the Rules of Court 2012 for recovery of liquidated demands. The conversion mechanics are valid under Section 72 and Section 75 of the Companies Act 2016 (Act 777), provided the board passes the requisite resolution authorising the allotment of shares. The note must be stamped under the Stamp Act 1949 (Act 378) — an unstamped instrument is inadmissible in evidence under Section 52 of the Stamp Act 1949, though it can be stamped late with a penalty.
In Malaysian practice, a Convertible Loan Note and a Convertible Note refer to substantially the same instrument — a short-term debt instrument that converts into equity. The term 'Convertible Loan Note' emphasises the loan (debt) character of the instrument, making clear that the noteholder is a creditor with priority over shareholders in liquidation under the Insolvency Act 1967 (Act 360). Some practitioners use 'Convertible Note' loosely to include SAFE-style instruments that lack a maturity date or interest obligation. A Convertible Loan Note always has both a stated interest rate (or an explicit zero-interest election) and a maturity date, distinguishing it from a SAFE (Simple Agreement for Future Equity), which is not a debt instrument and carries no creditor rights. The stamp duty treatment under the Stamp Act 1949 (Act 378) is the same for both terms when the instrument creates a debt obligation.
Stamp duty on a Convertible Loan Note in Malaysia is assessed under the Stamp Act 1949 (Act 378). The loan element attracts duty under Item 27 of the First Schedule at RM5 per RM1,000 or part thereof of the principal amount — so a RM500,000 note incurs RM2,500 in stamp duty. When the note converts into shares, a second stamp duty obligation arises under Item 32(b) at 0.3% of the total subscription consideration (the value of shares allotted). For example, if a RM500,000 note converts at a discount into shares worth RM600,000 at the qualifying round price, the stamp duty on conversion is RM1,800. Stamp duty must be paid to the Inland Revenue Board of Malaysia (LHDN) within 30 days of execution for instruments executed in Malaysia. Instruments executed abroad must be stamped within 30 days of their first receipt in Malaysia.
A Convertible Loan Note does not need to be registered with the Companies Commission of Malaysia (SSM) unless it creates a charge over the company's assets. If the Convertible Loan Note is secured by a fixed or floating charge over the issuer's property or undertaking, the charge must be registered with SSM within 30 days of its creation under Section 352 of the Companies Act 2016 (Act 777). An unregistered charge is void against the company's liquidator and creditors, so registration is critical for secured notes. An unsecured Convertible Loan Note — which is more common for startup financing — does not require SSM registration, though the board resolution authorising issuance should be maintained in the company's statutory records kept under Section 248 of the Companies Act 2016. Under Malaysia law, Financial Services Act 2013 (Act 758), parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
If a Malaysian company cannot repay a Convertible Loan Note at maturity and no qualifying financing event has occurred, the noteholder has several options. First, the parties may negotiate an extension of the maturity date by written amendment. Second, the noteholder may elect to convert the note into equity at a pre-agreed fallback conversion price — often the valuation cap divided by the fully diluted share count. Third, the noteholder may enforce the debt through the High Court of Malaya, obtaining a judgment for the principal plus accrued interest under Order 83 of the Rules of Court 2012. If the company is unable to pay, the noteholder may petition for winding up under Section 465 of the Companies Act 2016 (Act 777) if the debt exceeds RM10,000 and remains unpaid for 21 days after a statutory demand. In winding up, the noteholder ranks as an unsecured creditor behind secured creditors, preferential creditors (employee wages and EPF under the Employees Provident Fund Act 1991), and LHDN tax claims.
A foreign investor can hold a Convertible Loan Note in a Malaysian company, but conversion into equity shares may be subject to foreign ownership restrictions depending on the company's sector. Malaysia's Foreign Investment Committee (FIC) guidelines, the Bumiputera equity policy, and sector-specific regulations administered by agencies such as Bank Negara Malaysia, the Securities Commission Malaysia (SC), and the Malaysian Communications and Multimedia Commission (MCMC) may impose conditions on foreign equity participation. For example, licensed financial institutions, telecommunications companies, and media companies are subject to foreign ownership caps. A Convertible Loan Note issued by a company in a restricted sector should include a condition precedent requiring FIC or relevant regulatory approval before conversion is effective. The issuance of the loan itself generally does not trigger foreign ownership restrictions, but conversion into shares does, and the company's Constitution may also restrict share transfers or allotments to foreign persons.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
Found an error? Let us knowRelated Documents
You may also find these documents useful:
Convertible Note (Malaysia)
A Convertible Note for Malaysia — a short-term debt instrument that converts into equity at a future qualifying financing round — under the Companies Act 2016, the Contracts Act 1950, and the Capital Markets and Services Act 2007. Covers principal amount, interest rate, maturity date, discount rate, valuation cap, and conversion mechanics.
Investment Agreement (Malaysia)
An Investment Agreement for Malaysia between an investor and a company for equity or structured investment under the Companies Act 2016, the Capital Markets and Services Act 2007, and Securities Commission Malaysia (SC) guidelines. Covers subscription price, conditions precedent, investor rights (anti-dilution, pre-emption, board representation), and exit provisions.
Shareholders Agreement (Malaysia)
A Shareholders Agreement for Malaysia governing the relationship between shareholders of a company incorporated under the Companies Act 2016. Covers share ownership, board composition, voting rights, dividend policy, transfer restrictions, pre-emption rights, tag-along and drag-along rights, deadlock resolution, and exit mechanisms.
Inter-Company Loan Agreement (Malaysia)
An Inter-Company Loan Agreement for Malaysia governing a loan between related companies within the same corporate group — governed by the Companies Act 2016, Contracts Act 1950, and Income Tax Act 1967 transfer pricing rules. Covers principal, interest, repayment terms, and compliance with arm's length transfer pricing requirements.