Document background
The Loan Conversion To Equity Agreement is a critical document used in the UAE when parties wish to transform a debt obligation into an equity investment. This transformation is common in startup funding rounds, corporate restructuring, or when companies face challenges servicing debt payments. The agreement must comply with UAE Federal Law No. 32 of 2021 and other relevant regulations, particularly regarding company capital changes and share issuance. It includes detailed provisions on conversion mechanics, valuation methods, resulting shareholding structures, and necessary corporate approvals. The document is especially relevant in scenarios where lenders see greater value in becoming shareholders rather than maintaining their creditor status, or where companies seek to improve their balance sheet by reducing debt obligations. The agreement must address both UAE corporate law requirements and any applicable free zone regulations if the company operates in areas like DIFC or ADGM.
