The Legal Nature of a SAFE in Georgian Law
A SAFE — a simple agreement for future equity — does not exist as a separate contract type in Georgian law: the instrument is assembled from two sets of norms. The first is the norm of the Law on Entrepreneurs under which an entrepreneur entity is entitled to issue debt securities (bonds), including ones that carry the right of conversion into shares (Article 34¹). A debt security implies a monetary claim against the entity and may be issued with or without the payment of periodic interest (a coupon).
The second is the regime of securities convertible into shares: a joint-stock company may issue other securities convertible into shares in the manner established by law (Article 158, part 6). A debt security may encompass, among other rights, precisely the right of conversion into shares — this is the hinge by which the conversion mechanism of a SAFE is fitted onto Georgian norms. The obligatory side — the claim arising in exchange for the investor's contribution — rests on the general contract rules of civil law, since the instrument is not named in the law as a separate type.
The Terms of a Debt Security Issuance
The rights and obligations of holders of debt securities towards the entity are determined by the terms of issuance and by the relevant legislation. The terms of issuance or the charter may also establish particular powers exercised by the meeting of holders in their own name — including matters connected with the restructuring of the obligation (Article 34¹, part 2).
The terms of issuance must be accompanied by the issuance prospectus or the equivalent document on the basis of which the securities were issued, and by acquiring the debt securities a person agrees to those terms (part 6). In startup financing practice this means that every parameter of a SAFE or a convertible note — the conversion price, the discount, the triggering events — must be fixed precisely in the document.