finance limited-liability-company equity
What does upon conversion mean?
<p>What does it mean when an investor say "I will give you $100k in exchange for 10% equity upon conversion"? What does upon conversion exactly mean in layman's terms?</p>

<p>Sometimes people loan money to a company in a convertible debt transaction.</p>

<p>This means that if a certain event happens a certain amount of debt loaned to the company by an investor is converted into a certain amount of equity (i.e. stock or a membership interest) in a company.</p>

<p>"Upon conversion" when at the time that a debt to equity conversion is occurs because the circumstances calling for a conversion of debt to equity under the terms of the loan or governing documents of the company have occurred.</p>

<p>For example, I had a client whose company borrowed money to open up a restaurant that was converted from debt to equity upon the issuance of a liquor license to the company. If the liquor license had not been issued, the debt would have stayed debt. But, when the liquor license was issued, the debt was converted into shared of the company, leaving it with little long term debt and a substantial equity cushion that could more easily accommodate seasons variation in the business's income instead of having to make a large fixed debt payment every month.</p>
