Update on SAFEs

BOSTON — In late 2018, a revised form of the Simple Agreement for Future Equity (“SAFE”) was released. The new form, the Post-Money SAFE, is intended to provide additional clarity regarding how the SAFE issuance will affect stock ownership of the issuing company. To that end, the Post-Money SAFE denominates ownership taking into account the SAFE itself (but not the SAFE’s subsequent conversion). The new Post-Money SAFE also has several new features that may affect its classification for federal income tax purposes. Namely, the Post-Money SAFE allows for a dividend right, clarifies shareholder-like treatment in an exit event, and explicitly states that the SAFE is intended to be equity from a tax perspective.

We have previously argued that the old version of the SAFE could perhaps convincingly be considered equity for federal income tax purposes. (See Ben Damsky’s Tax Notes article in Tax Treatment of the ‘SAFE’ and "‘KISS’.) The additional equity-like features of the Post-Money SAFE further strengthen this potential equity treatment. The new SAFE may also provide a roadmap for users of the old SAFE to modify their form to further strength its equity characterization.

For more information:

Benjamin Damsky
(617) 918-7084
BDamsky@BlaisTaxLaw.com