Convertible Note Agreement — Nigeria

A Convertible Note Agreement in Nigeria governs the relationship between the parties by fixing what each must do.

Convertible notes in Nigeria are governed by the Companies and Allied Matters Act 2020 (CAMA 2020) and the Investments and Securities Act 2007 (ISA 2007). Under CAMA 2020, a company issuing a convertible note creates a debt obligation on its balance sheet; when the note converts to equity, the company issues new shares to the noteholder, which must be filed with the Corporate Affairs Commission (CAC) as an increase in allotted share capital under Section 124 of CAMA 2020. The Securities and Exchange Commission Nigeria (SEC Nigeria) regulates the issuance of securities to the public under the ISA 2007, but private placements of convertible notes to a limited number of sophisticated investors in a private company are generally exempt from SEC registration requirements.

The two key commercial terms in a convertible note are the discount rate and the valuation cap. The discount rate (commonly 10–20%) gives the noteholder the right to convert at a price that is a percentage below the price paid by investors in the qualifying round, rewarding the early-stage risk taken by the noteholder. The valuation cap sets a maximum pre-money valuation at which the note converts — if the qualifying round values the company above the cap, the noteholder converts as if the company's valuation were the cap, receiving more shares per naira invested.

Nigeria's startup ecosystem — centred in Lagos, with growing hubs in Abuja and Port Harcourt — uses convertible notes alongside SAFE (Simple Agreement for Future Equity) instruments in early seed and pre-seed rounds. The convertible note carries an interest obligation (typically 5–10% per annum), while a SAFE does not accrue interest. The choice between them depends on investor preference and the regulatory comfort of the parties.

The legal framework governing the Convertible Note Agreement — Nigeria in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Convertible Note Agreement — Nigeria in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Companies and Allied Matters Act (CAMA) 2020 sets the foundational requirements.

A Nigeria Convertible Note Agreement is needed when a startup or early-stage company raises seed or pre-seed capital from angel investors, accelerators, or seed funds before it is ready to close a priced equity round.

The agreement is required when a Nigerian tech startup raises its first external capital from an angel investor in Lagos or from a seed fund such as Microtraction, Ventures Platform, or EchoVC. Rather than attempting to agree a valuation at the earliest stage — when the company may have limited revenue or traction — both parties defer valuation to a future priced round.

The agreement is needed when a Nigerian company is graduating from an accelerator programme (such as Y Combinator, Google for Startups Accelerator Africa, or FATE Foundation) and the accelerator's standard investment is structured as a convertible note or SAFE.

The agreement is required when a foreign investor (for example, a US-based angel or African-focused venture capital fund) invests in a Nigerian startup and both parties agree that a convertible note is the most efficient instrument pending the company's next institutional round. The agreement must address Nigerian foreign exchange regulations — inflows must be received through a licensed bank and reported under the Central Bank of Nigeria (CBN) regulations on capital importation.

The agreement is also needed when a company in the Nigerian fintech, healthtech, or agritech sector raises bridge financing between institutional rounds, using a convertible note to provide working capital while a larger Series A or Series B round is prepared. In this context, the maturity date and default provisions are particularly important.

Parties in Nigeria should prepare a Convertible Note Agreement — Nigeria proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Nigeria Convertible Note Agreement must contain the following key elements.

Party identification: Full legal names, CAC registration number (RC number) of the company, address, and details of the investor. Where the investor is a foreign entity, confirm the currency of the principal amount and the CBN-compliant route for receiving the investment.

Principal amount and interest rate: The amount of the loan in Nigerian Naira (NGN) or a specified hard currency (subject to CBN forex regulations), and the annual interest rate (typically 5–10%). Interest accrues but is not paid in cash — it converts to equity together with the principal on conversion.

Maturity date: The date on which the note becomes repayable in cash if a qualifying conversion event has not occurred. Typically 12–24 months from the funding date. The note should specify what happens at maturity: repayment of principal plus accrued interest, or automatic conversion at the maturity valuation.

Conversion mechanics: The events that trigger conversion (qualifying financing round above a minimum size); the discount rate (e.g., 20% — noteholder converts at 80% of the price per share paid by new investors); the valuation cap (the maximum company valuation at which the note converts, regardless of the actual round valuation); and the formula for calculating the number of shares issued on conversion.

Qualifying financing definition: The minimum aggregate amount of a new equity financing round that triggers automatic conversion (commonly USD 500,000–1,000,000 for Nigerian seed-stage companies, expressed in NGN equivalent).

Default events: Events of default — including failure to repay at maturity, insolvency, winding-up, or material breach — entitling the investor to demand immediate repayment.

CAC filings on conversion: The company's obligation on conversion to file a return of allotment with the Corporate Affairs Commission (CAC) under Section 124 of CAMA 2020 within 15 days of allotting shares to the noteholder.

Governing law and dispute resolution: Laws of the Federal Republic of Nigeria, with arbitration under the Arbitration and Conciliation Act Cap A18 LFN 2004 or jurisdiction of the Lagos State High Court.

Additional compliance elements for a Convertible Note Agreement — Nigeria used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.