Can a California S-Corp issue Convertible Note to owner's spouse to raise funds? If Yes, Will it cause issues during Priced rounds? Please advise.
First question is why are you incorporated in California? Been a while since I looked at CA corp laws, but was highly unfavorable several years ago.
The answer is probably, "it depends." And providing any more specific answer might be considered legal advice. You're best to ask a California attorney for an official answer on this kind of question. It will require more detail from you for sure. You may find it easier to deal with a straightforward loan than another type of financial instrument when dealing with family. Is there a reason your spouse needs equity? California marital property laws might affect how such close deals are viewed and whether you are piercing the corporate veil in specific circumstances. These things are among many reasons you should consult a local attorney about the structure of potentially complicated financial arrangements.