Conversion of iSAFE Notes into Equity Shares: A Case Study
Contributed by: Neha Kujur
Email id: neha@simplybiz.in
Introduction
iSAFE stands for India Simple Agreement for Future Equity. An iSAFE note is not a debt instrument but convertible security notes beneficial for both startups and investors. In India, iSAFE note takes a legal form of Compulsorily Convertible Preference Shares (CCPS) which are convertible on the occurrence of specific events.
Commonly used for seed-stage funding, they allow startups to raise funds quickly without valuation complexity. You can read more about iSAFE Notes on our website https://simplybiz.in/i-safe-notes/.
Client requirement
The company was incorporated in 2020 and is engaged in Information Technology. To infuse funds into the Company for its growth and product development, the client approached its investors for issuance of iSAFE Notes. We have been associated with the company since 2021 and we manage their ongoing compliances under Companies Act. With regard to the issuance of iSAFE Notes, we understood the facts and undertook end to end advisory and also execution. These iSAFE Notes were issued in various trenches starting from the financial year 2021-22 to 2022-23 by entering into iSAFE Agreement with each investor.
As per the terms of agreement, the client proposed to convert these ISAFE notes into equity shares of the Company at a certain price arrived based on valuation. After understanding the facts of the case in detail, we initiated the process. We provided the client with a detailed note and an action plan with the steps involved in this exercise.
Our Work
Conversion of Compulsory Convertible Preference Shares (iSAFE) into the equity capital involves series of activities which were undertaken by us and the same are mentioned below:
- As a first step, we had to make sure that the client had the required Authorized Equity Share Capital to undertake the conversion process. Since the authorized equity share capital was insufficient, we initiated the process of increasing the authorized share capital of the company.
- After due coordination with the client and conducting the necessary meetings of the Board and the members, due intimation to the Registrar through filing of the relevant forms were made for increasing the authorized equity share capital and thereafter we went ahead with the conversion process.
- The conversion process required a lot of background work including checking the terms of the agreements in detail, calculation and preparation of post conversion capital table and finalizing the list of allottees along with number of equity shares to be allotted taking into account the discount rate etc.,
- After ensuring that all the background work, required documentation and calculations were in place, we initiated the process of conversion.
- The conversion process started with conducting a Board Meeting for approval of the conversion of iSAFE Notes into equity shares. The Board resolution inter-alia contained the number of shares and list of allotees to the conversion.
- Thereafter, the intimation to the Registrar for the same was made by filing of the FORM PAS-3, within 30 days of passing of the resolution.
- Necessary entries were made in the register of members of the Company and share certificates were issued to the allottees within 60 days.
The entire assignment was completed in a smooth & seamless manner. Our experience of handling various assignments related to the issuance and conversion of iSAFE Notes into equity has given us considerable exposure on the critical aspects to be looked into, in the process. We have undertaken similar assignments for other companies as well and the process has been smooth and seamless.
If you are looking for compliance support, we can help you with the same. SimplyCorp is a solution that offers comprehensive and end-end management of Corporate Governance & Secretarial Compliances covering all stages of entity life cycle. If want to know more on the compliance requirements and outsource the same to us, please write to our Product Head – Vaishali Vohra at the mail ID vaishali@simplybiz.in or SimplyCorp@simplyBiz.in.
Contributed by: Neha Kujur
Neha@simplybiz.in
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