The new changes of the Company law published on the 21st of April, 2022, introduce the “real” convertible loan institute for the limited liability companies in North Macedonia.
The law recognized this legal institute before, but the loan could be converted into equity only by the shareholder. Based on the wording of the previous definition, the convertible loan could only work for a limited liability company with one shareholder.
But, with the new changes in the company law, the definition of the convertible loan is changed and now the loan provided to the company by a shareholder or third party can be converted to equity of the company.
Based on the new law, the loan provided by a third party as an investor that is transformed into an investment in the company is given exclusively in money. This loan can be transformed into equity no later than three years after the loan agreement had been signed.
According to the changes of the law, it is stipulated that the loan is transformed into a new investment in the company in a procedure of increasing the share capital of the company.
This increase of the share capital is entered based on a loan agreement that is transformed into an investment in the company in a procedure of increasing the share capital of the company and a decision to transform the loan into an investment.
The new law strictly defines the content of this loan agreement, stipulating that the agreement must include the total amount of the loan, the conditions under which the loan will be repaid, the conditions for transforming the loan into an investment in the company, the period in which the loan can be transformed into an investment in the company and the percentage of a share acquired by transforming the loan or method of calculation of the share if the percentage of the share cannot be foreseen on the day of concluding the contract.
The agreement must be notarized and has to be signed between the manager and the shareholders on one side and the investor / third party on the other side.
The change of the law should be considered very good news, especially for the startup community that can use the convertible loan as a method to acquire more investments in the new startup companies.
By Martin Boskoski, Partner, Lalicic & Boskoski Law Office