Before a convertible note converts, confirm whether interest is included in the amount exchanged for shares. The principal balance alone may not reflect the conversion provisions, and an accounting accrual is not proof of the contractual amount.
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Prepare the calculation for legal and accounting review before producing final share numbers.
Identify the interest terms
Read the rate, start date, accrual basis, compounding provisions if any and conversion cut-off. Check how repayments, waivers or an amended maturity date affect the amount.
Establish whether accrued interest converts, is payable separately or receives a different treatment under the agreement. Do not assume all instruments follow the same rule.
Example: closing slips across a month end
The parties agree a conversion schedule using an expected closing date. Completion later moves into the next month. Determine whether the calculation must change under the documents, rather than treating the earlier schedule as final simply because it was circulated.
Create the reconciliation
- Principal actually advanced and repayments.
- Contractual interest rate and calculation period.
- Interest accrued in the accounting records.
- Any legally effective waiver or settlement.
- Amount converting and the applicable price.
- Rounding and cash treatment of any residual.
Explain every difference between the ledger and transaction calculation. A tax provision or estimated accrual should not be silently treated as a contractual amendment.
Review the investor and tax position
Identify the actual creditor, tax residence and nature of the payment or satisfaction of interest. Ask tax advisers about any applicable obligations, including withholding issues, rather than assuming that no cash payment means no tax question.
Document the conclusion on the actual facts. The share issue and accounting classification do not alone determine tax treatment.
Complete the corporate transaction
Review the issue authority, class rights and ACRA allotment process. Match the approved conversion schedule to the actual shares issued and relevant register outcome.
Keep evidence that the debt was settled to the agreed extent. Do not clear all balances merely because some shares were issued if separate interest or costs remain payable.
Does every note convert accrued interest?
No. Read the signed terms and amendments.
Can an accounting estimate determine the final share allocation?
Reconcile the contractual calculation first and obtain proper approval for the actual allocation.
Related shareholder resources
Read our company constitution guide, subscription completion checklist and deed of adherence review.
Get help with the transaction
For corporate records and share transaction support, email [email protected] or WhatsApp +65 8501 7133. Legal advisers from our associated law firms can assist with investment documents, shareholder agreements and disputes. Accounting and tax advisers can review the financial treatment.