As a side note. If you are considering raising money through convertible debt:
1) Make sure the contract protects you personally if the company cannot pay the note. For example, make it so the note automatically converts to equity instead, or so a certain % of note holders can force the conversion.
2) Make sure there is nothing in there saying that you or your company have to pay the legal fees of the investor.
3) Get legal services / liability insurance for the founders of the company. This will help ease the financial burden in case of legal issues.
Usually, investors that lend you money have a lot more (legal) ways to go after you than equity investors (shareholders). With good actors this is usually not a problem, but when assholes are involved, you never know.
Also, bankruptcy is expensive. There are 2 types of corporate bankruptcy, Chapter 7 and Chapter 11. Ch 7 will cost you about $20-50k in legal fees, depending on the complexity of the case - bear in mind that after the company files for Ch 7, you have to pay for your own legal fees. Ch 11 is about $100k+ - most lawyers will advise against it unless you have pretty deep pockets.
You can also unwind a company outside of court, but it is a bit risky legally and something you definitely not want to do when there's a potential conflict or a bad actor involved.
1) Make sure the contract protects you personally if the company cannot pay the note. For example, make it so the note automatically converts to equity instead, or so a certain % of note holders can force the conversion.
2) Make sure there is nothing in there saying that you or your company have to pay the legal fees of the investor.
3) Get legal services / liability insurance for the founders of the company. This will help ease the financial burden in case of legal issues.
Usually, investors that lend you money have a lot more (legal) ways to go after you than equity investors (shareholders). With good actors this is usually not a problem, but when assholes are involved, you never know.
Also, bankruptcy is expensive. There are 2 types of corporate bankruptcy, Chapter 7 and Chapter 11. Ch 7 will cost you about $20-50k in legal fees, depending on the complexity of the case - bear in mind that after the company files for Ch 7, you have to pay for your own legal fees. Ch 11 is about $100k+ - most lawyers will advise against it unless you have pretty deep pockets.
You can also unwind a company outside of court, but it is a bit risky legally and something you definitely not want to do when there's a potential conflict or a bad actor involved.