SAFE for BVI Companies
TL;DR
The SAFE is a simple, founder-friendly instrument to raise capital without setting a valuation at the outset.
In the British Virgin Islands (BVI), SAFEs are adapted from the U.S. version but must comply with the BVI Business Companies Act 2004 and common law principles of contract.
Companies and investors should work with BVI-qualified counsel to ensure the SAFE aligns with local corporate and regulatory requirements.
Founders should understand how the SAFE interacts with the company’s Memorandum and Articles of Association, as well as statutory share issuance procedures in the BVI.
A SAFE is not a loan — there is no interest, no repayment, and no maturity date.
What is a SAFE?
A SAFE is a contractual agreement where a company grants an investor the right to receive equity upon a future triggering event — typically a priced equity round, sale, or IPO. It is not a loan; hence, it carries no interest rate or repayment obligation.
Originally created by Y Combinator in 2013 and updated in 2018 with the post-money SAFE, this form has become a standard for early-stage financing globally, including in the BVI, with certain jurisdiction-specific tweaks.
Key Features
Post-Money Valuation Cap
The SAFE includes a valuation cap — the maximum company valuation at which the SAFE will convert into equity. The post-money cap ensures clarity on ownership percentage after all SAFEs and convertibles are accounted for.
Conversion Triggers
Conversion typically occurs at:
The next priced equity round;
A liquidity event (such as an acquisition or IPO);
Sometimes, at dissolution, although return amounts may be nominal for early-stage startups.
BVI-Specific Considerations
Governing Law
The YC SAFE is governed by California law by default. For BVI companies, it’s common practice to amend the document so BVI law applies, and BVI courts (or agreed arbitration forums) are designated for dispute resolution.
Memorandum and Articles of Association
BVI companies are governed by their Memorandum and Articles of Association (M&A). Founders must review their M&A to ensure there are no restrictions on issuing shares or convertible instruments, and that the SAFE conversion rights are compatible with existing shareholder rights and pre-emption provisions.
Director Authority and Share Issuance
Unlike jurisdictions with detailed statutory requirements, BVI directors generally have broad discretion to issue shares, subject to the M&A. It’s important to confirm that the board has the authority to issue the relevant class of shares on SAFE conversion without needing shareholder approval.
Share Class Mechanics
The SAFE should clearly specify the class of shares to be issued on conversion (often preferred shares) and set out the rights attaching to those shares. In the BVI, share rights must be clearly defined either in the SAFE, in the company’s M&A, or in the formal share terms adopted upon issuance.
No Local Filing Requirement
The BVI does not have a public register of members, and there are no statutory filing requirements upon the conversion of a SAFE. However, companies should update their internal registers of members and beneficial owners promptly. Ensure that you have promptly notified your company’s registered agent about the SAFE conversion. Additionally, from January 1, 2025, depending on the converting investor’s stake, you may need to file an amendment to the Beneficial Ownership Report.
Common Pitfalls in the BVI
Using unmodified US templates: Failing to localize the SAFE for BVI governing law or ensuring alignment with the company’s M&A can lead to enforceability problems.
Overlooking director authority: Assuming the board can issue shares without checking M&A restrictions or shareholder agreements may result in invalid conversions.
Unclear share rights: The lack of statutory default rights for classes of shares in BVI means unclear share terms can cause confusion or disputes upon conversion.
Failure to update registers and reports: Companies sometimes neglect to promptly update internal registers of members and beneficial owners, or to notify their registered agent about SAFE conversions. From January 1, 2025, this could result in non-compliance with the requirement to file amendments to the Beneficial Ownership Report if the converting investor crosses the 25% ownership disclosure threshold. Failure to comply may lead to significant penalties, including fines on the company of up to $100,000 and, in some cases, personal liability for directors for continued contraventions.
One document. Countless deals.
FAQ
The exercise price of the shares under the FAST agreement will be determined at the time of issuance and will be included in the applicable Stock Purchase Agreement.
-
-
-
-
-