Promissory Note Secured by Pledge of Stock (Start-Up, Founder)
Summary
This form Promissory Note enables a founder, key employee, or consultant to purchase common stock from a start-up company using a promissory note that is secured by a pledge of the stock being purchased. This template includes practical guidance, drafting notes, and optional clauses. Note that some states prohibit or restrict the use of promissory notes as consideration for the purchase of stock. For example, California law does not permit promissory notes as consideration for the purchase of stock unless (1) such notes are secured by collateral other than the shares being issued (e.g., a promissory note secured by the purchaser's home, bank accounts or other valuable collateral) or (2) the promissory note is used by the founder or employee to purchase stock pursuant to a stock purchase plan or agreement (see California Corporations Code Section 408(a)). This form should be read in conjunction with the practice note Founder Equity Purchase Agreements and Issuances: Drafting ...