Limited company guide
How convertible instruments are accounted for, how they interact with SEIS and EIS, and what to check before signing an advance subscription agreement.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityA convertible loan note is debt that converts to equity on a trigger event. A SAFE is a US instrument that is not debt but is not shares yet either. An advance subscription agreement is the UK-friendly version: money paid now for shares issued later, with no repayment right.
The three instruments
Why UK founders usually use ASAs
Accounting treatment
Before you sign
A convertible loan note is debt that converts to equity on a trigger event. A SAFE is a US instrument that is not debt but is not shares yet either. An advance subscription agreement is the UK-friendly version: money paid now for shares issued later, with no repayment right.
The distinction matters because SEIS and EIS relief is only available on shares issued for cash, and money that could ever be repaid as a loan generally will not qualify.
An ASA structured with no repayment right, a longstop date typically within six months and no interest can preserve SEIS and EIS eligibility on the shares eventually issued. A conventional convertible loan note usually cannot.
If you plan to offer investors SEIS or EIS relief on a bridge round, this is not a drafting detail, it is the whole point of the structure.
Convertible debt sits as a liability until conversion, with interest accruing if applicable. An ASA is generally presented within equity or as a separate item depending on terms, and is not turnover under any circumstances.
Discounts and valuation caps affect the number of shares issued on conversion, which affects dilution and, sometimes, employment-related securities considerations for founder holdings.
Model the dilution at the cap and at the discount, at the valuations you actually expect. Founders frequently sign caps that imply far more dilution than they realise once the round lands above expectations.
Check longstop dates, conversion triggers, what happens on an exit before conversion, and whether the terms create rights that would disqualify SEIS or EIS.
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Frequently asked
Generally not on the note itself. Relief attaches to shares issued for cash, which is why ASAs without repayment rights are the usual UK route for advance-relief bridges.
They are used, but they were designed for US law and can create issues with UK reliefs and company law. Most UK counsel prefers an ASA.
Yes, as a separate item pending share issue. It is not revenue and should never appear in the P&L.
Under a properly drafted ASA the money converts at the longstop date at an agreed valuation rather than being repaid, which is precisely what makes the relief work and what founders should understand before signing.
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