The Singapore Context
The choice between a SAFE (Simple Agreement for Future Equity) and a traditional convertible note is one of the most common questions we receive from AI founders raising pre-seed or seed rounds in Singapore. While both instruments serve the same fundamental purpose — providing early capital in exchange for future equity — their legal mechanics, tax treatment, and commercial implications differ in ways that matter significantly under Singapore law.
Y Combinator's SAFE was designed for Delaware-incorporated companies under US corporate law. When Singapore-incorporated companies adopt the SAFE template without modification, they encounter several issues that can create complications in subsequent fundraising rounds. We have seen these issues derail Series A closings, particularly when the incoming lead investor's counsel is unfamiliar with how the SAFE interacts with Singapore's Companies Act 1967 and the Accounting and Corporate Regulatory Authority (ACRA) filing requirements.
Structural Differences
The fundamental structural difference between a SAFE and a convertible note is that a convertible note is debt — it carries a principal amount, an interest rate, and a maturity date — while a SAFE is neither debt nor equity. A SAFE is a contractual right to receive equity upon a triggering event, typically a priced equity round. This distinction has significant practical implications under Singapore law.
Convertible notes, as debt instruments, are subject to Singapore's lending and borrowing regulations. The interest component is taxable income for the noteholder and may be deductible for the issuing company. The note appears as a liability on the company's balance sheet, which affects financial ratios and may impact the company's ability to enter into other debt arrangements. At maturity, if the note has not converted, the company has a legal obligation to repay the principal plus accrued interest — creating a genuine liquidity risk for early-stage startups.
A SAFE, by contrast, does not appear as debt on the balance sheet. Under Singapore Financial Reporting Standards (SFRS), the appropriate accounting treatment of a SAFE depends on its specific terms, but it is typically classified as a financial liability measured at fair value. The SAFE carries no interest and no maturity date, which eliminates the repayment risk. However, the absence of a maturity date also means that the SAFE holder has no mechanism to force conversion or repayment if the company never raises a qualifying round — a risk that sophisticated angel investors are increasingly aware of.
Singapore Law Considerations
Several aspects of Singapore company law require careful attention when drafting either instrument. First, the issuance of convertible notes or SAFEs requires shareholder approval under the Companies Act, unless the company's constitution provides a general mandate to the directors. Most early-stage Singapore companies operate under the standard model constitution, which does grant directors broad authority to issue shares, but the conversion mechanics of a SAFE or convertible note should be reviewed against the specific terms of your constitution.
Second, Singapore's stamp duty regime may apply to convertible notes. Under the Stamp Duties Act 1929, the transfer of shares triggers stamp duty at 0.2% of the consideration or the net asset value, whichever is higher. The conversion of a convertible note into shares is technically a transfer that may attract stamp duty, although in practice IRAS has not consistently enforced this position on primary issuances. For SAFEs, the stamp duty position is less clear, and we recommend obtaining confirmation from IRAS on the applicable treatment before closing.
Third, founders should be aware of the interaction between these instruments and Singapore's tax incentive schemes. The Startup SG Equity scheme, which provides co-investment funding for qualifying startups, has specific requirements around the company's capital structure. Similarly, the Enterprise Development Grant (EDG) and other SPRING/EnterpriseSG programs may have conditions that are affected by the existence of outstanding convertible instruments. We always advise founders to review their incentive scheme conditions before issuing SAFEs or convertible notes.
Which Instrument to Choose
For Singapore-incorporated AI startups raising from US-based investors, we generally recommend a modified SAFE that has been adapted for Singapore corporate law. The key modifications include explicit provisions for ACRA filing mechanics, clear conversion mechanics that comply with the Companies Act, appropriate representations regarding the company's constitution, and a cap table treatment that is compatible with standard Singapore share registrar practices. For raises primarily from Singapore or ASEAN-based investors, a convertible note with founder-friendly terms — including a reasonable interest rate (typically 4-6% per annum), a 18-24 month maturity date, and automatic conversion on a qualifying round — remains the more familiar and often preferred instrument. The critical point is that neither instrument should be adopted as a template without customization for Singapore law and your specific commercial circumstances.