SAFEs in Pakistan

The position described here is as of July 2026. The State Bank's foreign exchange framework and the SECP's regulations move frequently in exactly this area, so the bracketed points are not formalities — confirm them on current text before money moves.

The SAFE — Simple Agreement for Future Equity — was published by Y Combinator in 2013 for Delaware corporations, and the post-money version of 2018 is now the default seed instrument across most of the venture world. An investor pays money today; the company promises shares later, when a priced round, a sale, or a dissolution happens; there is no interest, no maturity date, and, in its native habitat, no negotiation beyond the valuation cap. Pakistani founders meet the SAFE the moment a foreign accelerator or angel appears, usually as a PDF described as non-negotiable.

Pakistan has no statute recognising the SAFE. That does not make it illegal; it makes it a contract, and the honest analysis starts there.

What a SAFE is under Pakistani law

Signed by a Pakistani private company, a SAFE is an agreement governed, in substance, by the Contract Act, 1872: money paid now against a promise of shares on a defined trigger. Until the trigger arrives and the company completes an allotment, the investor is not a shareholder in any sense the Companies Act, 2017 recognises. They hold a contractual claim — which means that in a winding up before conversion they rank as an unsecured creditor, and that their rights against the company are whatever the document says and nothing more.

Two characterisation questions sit underneath and deserve a lawyer's attention on the specific facts. First, whether money taken under a SAFE could be treated as a deposit or borrowing for the purposes of the Companies Act's restrictions on companies raising money, given that the standard form contemplates repayment in a dissolution event [CHARACTERISATION UNDER DEPOSIT AND BORROWING RESTRICTIONS — TO BE VERIFIED BY REVIEWING LAWYER]. Second, whether the eventual conversion issue stays inside the private placement boundary drawn by the Securities Act, 2015 and the Private Placement of Securities Rules, 2017, which turns partly on how widely the raise was offered [APPLICATION TO CONVERTIBLE INSTRUMENTS — TO BE VERIFIED BY REVIEWING LAWYER]. Neither question has a clean published answer, which is itself information: this instrument operates ahead of the regulatory map here.

Why the US form cannot perform as written

The Delaware SAFE assumes shares can come into existence by board action, essentially automatically, when the trigger fires. A Pakistani private company cannot do that. A new issue of shares travels through defined machinery: the pre-emption principle in section 83 of the Companies Act, 2017, under which new shares are first offered to existing members in proportion to their holdings; the shareholder authority required to depart from that principle in favour of an outsider, through the prescribed route [MECHANISM UNDER THE COMPANIES (FURTHER ISSUE OF SHARES) REGULATIONS 2020 FOR PRIVATE COMPANIES — TO BE VERIFIED BY REVIEWING LAWYER]; sufficient authorised capital; a board allotment; a return of allotment filed with the SECP; and certificates and register entries within their statutory windows.

Every one of those steps is a place where an unprepared conversion stalls. A forgotten early shareholder declines to waive pre-emption. Authorised capital is short by exactly the conversion shares. The cap implies a price per share below face value, colliding with the Act's restrictions on discounted issues [CONDITIONS — TO BE VERIFIED BY REVIEWING LAWYER]. None of these is exotic; all of them have delayed real rounds. The US form is silent on every one, because in Delaware none of them exists.

Money now, shares later: the exchange-control gap

Where the SAFE investor is foreign, a second regime applies, and it is the harder one. The Foreign Exchange Regulation Act, 1947 and the State Bank's Foreign Exchange Manual govern the issue of shares to non-residents: the money arrives as a remittance through an authorised dealer, and the framework is built around the expectation that shares are issued against that remittance and reported through the bank within a limited period — not years later at an unknowable valuation [CURRENT TIME LIMITS AND PROCEDURE UNDER THE FE MANUAL'S SECURITIES CHAPTER — TO BE VERIFIED BY REVIEWING LAWYER]. A SAFE is, by design, an indefinite gap between remittance and issuance. That structural mismatch is the deepest problem with SAFEs into Pakistani companies, and it cannot be drafted away in the SAFE itself; it has to be handled with the bank, in advance, on the current rules. The State Bank has adjusted aspects of its framework for startup investment in recent years, and whether any current provision accommodates SAFE-style advances should be checked as a first step on every deal [CURRENT SBP PROVISIONS FOR STARTUP AND CONVERTIBLE INVESTMENT — TO BE VERIFIED BY REVIEWING LAWYER].

The consequences of ignoring this are not theoretical. Shares issued years after an unreported remittance may not achieve repatriable status, which the investor discovers at exit; and money that bypassed the banking channel entirely — a transfer to a founder's personal account is the classic case — creates exposure under the 1947 Act and a diligence problem no later paperwork fully cures.

Adapting the instrument

A SAFE that works in Pakistan keeps the economics and rebuilds the machinery. The economics — valuation cap, discount, most-favoured-nation clause, pro rata right — are contract terms and translate directly. The rebuild is everything else: the corporate approvals passed at signing rather than promised for later, so the shareholder authority and pre-emption waivers already exist when the trigger fires; covenants to maintain authorised capital headroom at the cap; a defined timeline from trigger to allotment, filing, and certificate; information rights, since a non-shareholder otherwise has none; and stated remedies if the company does not perform, drafted with the Specific Relief Act, 1877 in view, because shares in a private company are the kind of asset a court may order delivered in kind rather than compensated in damages. Stamp the instrument under the provincial stamp law when signed. An adapted SAFE is longer than the four-page original. The extra pages are where Pakistan happens.

The offshore alternative

The friction above is a large part of why internationally funded Pakistani startups raise at a foreign holding company — Delaware, Singapore, or ADGM — where the SAFE converts natively and the investor's enforcement questions answer themselves. That choice trades one body of complexity for another: the flip itself requires care, and Pakistani-resident founders acquiring shares in the foreign parent sit inside the 1947 Act, needing the State Bank position on the holding structure addressed before, not after, the shares are issued [CURRENT SBP TREATMENT OF RESIDENT FOUNDERS' HOLDINGS IN FOREIGN PARENT COMPANIES — TO BE VERIFIED BY REVIEWING LAWYER]. The decision is a genuine one, made on the facts of the round and the investor base. What should never drive it is drift — signing the foreign form at the Pakistani company because nobody asked where the instrument could actually perform.

Terms worth negotiating even when told not to

Accelerator SAFEs are presented as standard, and their economics mostly are. Three points still deserve attention from a Pakistani company. The cap type: post-money caps fix the investor's percentage and stack dilution onto founders, so model any accumulation of SAFEs together. The trigger definitions: the qualifying round threshold and the liquidity event language should map onto Pakistani corporate reality, including an acquisition structured as a share transfer rather than a merger. And the ending: because a SAFE has no maturity, add a longstop — a date on which the investor may elect conversion at the cap or repayment — so the instrument cannot simply hang over the cap table forever. A company that raises well will never need the longstop. A company that muddles through without a priced round will be grateful someone drafted it.