SAFE for Panama Companies
TL;DR
The SAFE is a simple, founder-friendly financing tool that lets startups raise financing without setting a valuation at the time of investment.
In Panama, SAFEs can be adapted from the U.S. version, but companies should ensure compliance with Panama contract law and the Corporations Law (Law 32 of 1927).
Work with local counsel to ensure enforceability under Panamanian law and alignment with corporate governance rules in your company’s articles of incorporation.
Founders should ensure that SAFEs integrate smoothly with procedures for share issuances and board approvals under Panamanian law.
A SAFE is not a loan — there is no interest, no repayment, and no maturity date.
What is a SAFE?
A SAFE is a contract between a company and an investor that provides the investor the right to receive equity in the future, usually at the next priced equity financing or a liquidity event (sale or IPO).
First published in 2013 and updated in 2018 (post-money SAFE), the Y Combinator SAFE has become a global standard and is often used by Panamanian startups with jurisdiction-specific adjustments.
Key Features
Post-Money Valuation Cap
The valuation cap sets the maximum company valuation at which the SAFE will convert into equity. The post-money structure provides investors and founders with greater clarity about dilution after all SAFEs and convertibles are accounted for.
Conversion Triggers
SAFEs typically convert upon:
The next priced equity round;
A liquidity event (merger, sale, or IPO);
Optionally, dissolution, where payouts upon liquidation (though often nominal for early-stage companies).
Panama-Specific Considerations
Governing Law
The YC SAFE defaults to California law. For Panama, change the governing law to Panama and select local arbitration or courts to ensure enforceability.
Articles of Incorporation (Estatutos Sociales)
Panama corporations are governed by their Articles of Incorporation. Startups must review these documents to ensure that share issuance on SAFE conversion does not conflict with existing shareholder rights (such as pre-emption rights or issuance limitations) and that the board is authorized to issue the required shares.
Board Approvals
Under Panamanian law, the board of directors typically has wide authority to issue shares, but this is subject to any restrictions in the Articles of Incorporation. Founders should verify that the board can approve share issuance without requiring shareholder consent for SAFE conversions.
Share Class Mechanics
The SAFE should specify the class of shares to be issued upon conversion. In Panama, this will usually be preferred shares with defined rights. These rights should either be set out in the SAFE, the Articles of Incorporation, or the corporate resolutions approving the issuance.
Beneficial Ownership Disclosure
Panama’s Ultimate Beneficial Owner (UBO) Law (Law 129 of 2020) requires resident agents to maintain updated records of the ultimate beneficial owners of corporations. When a SAFE converts and creates a new beneficial owner (e.g., an individual holding 25% or more of shares or voting rights, or with significant control), the resident agent must be notified within 15 business days to update the UBO Register and Company’s Certificate of Incumbency.
Common Pitfalls in Panama
Failing to localize the SAFE: Simply using a U.S.-style SAFE without adjusting governing law or checking compatibility with the Articles of Incorporation can result in enforceability hurdles.
Overlooking board and shareholder approvals: Assuming the board can issue shares without checking statutory or charter limitations may lead to invalid conversions.
Unclear share rights: Not defining the rights of shares to be issued upon conversion can create uncertainty or disputes when the SAFE converts.
Failure to update UBO records: Startups sometimes neglect to promptly notify their resident agent of changes following SAFE conversions. This could result in non-compliance with Law 129 of 2020, leading to administrative fines that may reach up to $50,000 for the company, and additional sanctions in case of continued default.
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.
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