• Thomsen Patel posted an update 8 months, 4 weeks ago

    A Cap Table Convertible Note is also known as a convertible note, debenture note or promissory note. In Canada the term is referred to as a Canadian cap note. The cap table is a financial instrument in which the holder of the cap is repaid the principal and interest due on a monthly basis by receiving an equal monthly payment. It is a debt instrument that gives holders a financial opportunity to convert their floating debentures into fixed debentures. This conversion is accomplished by paying a lump sum amount to the holder of the cap table in exchange for a right to receive monthly payments for a specified period of time from the holder of the cap table. A cap table is an unsecured debt of a Canadian company.

    A convertible note is simply a debt instrument that gives the holder of the note a legal right to convert debentures held in the note account into shares of stock of the company. They may do this by purchasing an option on debentures. It is usually done by a holder of the note because most options are bought “out of the blue”. There is no formal contract between the buyer and the seller. They “just heard that they might be able to buy some shares”.

    There are startup of convertible notes – debentures and promissory notes. Debentures refer to debt instruments that give their holders a legal right to convert debentures held in the note account into shares of the company. These debts must be secured with the assets of the company. If the company cannot afford to pay for the debt then the holder of the debentures can foreclose upon them and take control of the assets of the company.

    A promissory note is a legal obligation between an individual or group of individuals to pay a debt owed to them on a specific date. Each month they have to send a check to the issuer of the obligation. The issuer is called the promissory note holder. The issuer, who pays interest on the debt, can use its asset base (the cash on hand) to purchase an option from the holder of the debt.

    Some people confuse convertible notes with stock instruments. However, they are different because the convertible note is not issued with the stock. Instead, it is issued under an exclusive contract. The price paid for the option is less than the price of the stock on the market.

    An ordinary option contract gives the buyer a right to purchase a certain stock (the “call option”) at a fixed price (the “put option”). Under the cap table, the same contract allows the buyer of the convertible note to purchase the underlying stock for less than the price of the option. The call option may give the buyer a right to buy 100 shares of stock for a specified price, while the put option gives them the right to sell 100 shares of the stock for a specified price. If the buyer sells the call option and the seller of the put option is a company that is on the Nasdaq, they will be forced to pay the holder of the convertible note the amount of the difference between the two prices (the “call premium”).

    Another difference between a convertible note and an ordinary option contract is that the holder of the note is not required to pay the price of the option. Instead, he is only required to pay the difference between the strike price and the market price, which is known as the “calls.” This is referred to as the premium. Most financial institutions that issue notes require that the holder provide the counterbalance. This is because putting the holder’s money into a bank account does not give them a right to collect it should the borrower fail to meet his obligations.

    Since the convertible note is issued under an exclusive contract, only one party is allowed to exercise the option and purchase the underlying asset. Because of this, the holder of the note will rarely exercise their right to sell the note. As a result, the interest rate on the notes will often be higher than it would be if the holder were able to sell the notes. If the borrower fails to make his payments, however, the interest rate will then be reset to the current market rate plus a small profit.

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