By the recent amendment to the “Law on Joint-Stock Companies” of the Republic of Armenia on 27 May 2024, Simple Agreements for Future Equity (SAFE Agreements) have been incorporated into the legislation of Armenia.

Generally, SAFE Agreements have become a key financing tool for startups around the world. A SAFE Agreement outlines the investment terms between an investor and a company. Unlike traditional equity or debt financing, a SAFE Agreement is a hybrid instrument that allows a company to raise funds without immediately issuing equity or incurring debt. Instead, it provides investors with the right to convert their investment into preferred shares at a future date.

According to Article 38.2 (1) of the Law “On Joint-Stock Companies” of the Republic of Armenia, the investor, as one party, undertakes to invest a specified amount into the company’s equity, and the company, as the other party, undertakes to issue and allocate shares in favor of the investor a specified number, type, and class of shares at a future date, upon the fulfillment of the conditions specified in the agreement.

Based on the Law “On Joint-Stock Companies”, SAFE Agreements includes several essential elements, particularly:

  • The investor undertakes to invest the amount specified in the agreement, and the company undertakes to issue shares in the event of the fulfillment of the conditions provided for in the SAFE Agreement.
  • The investor transfers the funds, and the issuance of shares is carried out upon the fulfillment of the conditions.
  • In the event of the fulfillment of the conditions, the company is obliged to issue the shares within 60 days.
  • The pre-emptive right of shareholders does not apply in the case of the exercise of the rights of investors provided for in the SAFE Agreement.
  • The SAFE Agreement may provide for the return of the invested funds and the payment of interest.
  • Investment relations are regulated by the regulations of the Central Bank.
  • SAFE Agreement is considered as securities.

This new legal amendment enhances the investment environment and offers new opportunities for startup financing in Armenia. Startups can utilize SAFE Agreements to secure necessary capital while deferring the complexities of equity issuance. Moreover, it aligns Armenia with global financing practices, potentially attracting more investors and fostering a more dynamic startup ecosystem.