When a small company or start-up business needs funds, it often turns to "Angel Investors." Angel investors are typically wealthy individuals who invest in early-stage companies. Such individuals may invest by purchasing stock directly from the company, either themselves or via an entity (like a trust or LLC) that they control. Angel investors may also elect to invest in the company by making a loan, either secured or unsecured by the company's assets. Sometimes these loans will have a "conversion" right to convert some or all of the loan amount into company stock and the documentation for such loans is typically in the form of a Convertible Promissory Note.
Whether the loan converts to stock or not, a
Promissory Note is usually the primary legal document used to memorialize the obligation of the company to repay the loan from the angel investors.
You can learn more and view a sample Promissory Note legal document by clicking this link.