The Safe Equity Agreement is designed for early-stage startups in India seeking to raise capital without immediately setting a valuation or issuing equity. This instrument, adapted from the Y Combinator SAFE for the Indian legal context, provides a simplified alternative to convertible notes while ensuring compliance with Indian corporate and securities laws. The agreement is particularly useful for pre-seed and seed rounds where traditional equity pricing may be premature or impractical. It includes essential provisions for future conversion to equity, typically triggered by qualified financing rounds, and incorporates necessary safeguards for both investors and companies under Indian law. The document addresses key requirements under the Companies Act 2013, SEBI regulations, and where applicable, FEMA guidelines for foreign investment.
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1. Parties: Identification of the Company and the Investor
2. Background: Context of the agreement and basic premises
3. Definitions and Interpretation: Key terms used in the agreement and rules of interpretation
4. Investment Amount: Details of the investment sum and payment terms
5. Conversion Rights: Terms and conditions for converting the investment into equity shares
6. Qualified Financing Provisions: Definition and terms of qualified financing triggering automatic conversion
7. Company Representations and Warranties: Basic company representations about its legal status and authority
8. Investor Representations: Basic investor representations about investment capacity and understanding
9. Information Rights: Investor's rights to receive company information and updates
10. Most Favored Nation: Protection ensuring investor gets best terms offered to future SAFE holders
11. Events of Dissolution: Rights and procedures in case of company dissolution or liquidation
12. Assignment and Transfer: Rules regarding transfer of rights under the agreement
13. General Provisions: Standard boilerplate clauses including notices, amendments, governing law
1. Pro-rata Rights: Optional right to participate in future rounds, typically for larger investors
2. Board Observer Rights: Rights to attend board meetings, typically for strategic investors
3. Foreign Investment Compliance: Additional provisions for compliance with FEMA when investor is foreign
4. Valuation Cap: Optional cap on conversion valuation, if agreed between parties
5. Discount Rate: Optional discount on conversion price relative to qualified financing
6. Tag-Along Rights: Optional right to participate in sale of shares by founders
7. Special Tax Provisions: Additional tax-related terms for specific jurisdictions or situations
1. Schedule 1 - Investment Terms: Detailed terms of investment including amount, valuation cap if any, and discount rate if any
2. Schedule 2 - Capitalization Table: Current capital structure of the company
3. Schedule 3 - Company Information: Key company details including registration information and directors
4. Schedule 4 - Conversion Mechanics: Detailed mathematical formula and examples of conversion calculations
5. Schedule 5 - Form of Conversion Notice: Template for conversion notice to be used when exercising conversion rights
6. Appendix A - Compliance Certificates: Templates for any required compliance certificates
7. Appendix B - Rights Amendment: Template for amendments in case of most favored nation clause activation
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