Simple Agreeent for Future Equity in Armenia
The National Assembly of the Republic of Armenia ratified the law "On Amendments to the Law on Joint Stock Companies", introducing a new mechanism for startup financing. Effective from May 30, 2024, the law allows investors to inject capital into a company’s equity in exchange for future shares, providing a clearer path for early-stage funding.
According to the newly introduced Article 38.2, Part 1 of the "Law on Joint Stock Companies", it is established that under a SAFE (Simple Agreement for Future Equity) agreement, one party, the investor, commits to investing the amount of funds specified in the agreement into the equity of a joint-stock company ("Company"). In turn, the Company commits to issue and allocate to the other party (the investor) the number, type, and class of shares determined by the agreement, or in accordance with the procedure specified in the agreement, once the outlined conditions are met in the future.
The main provisions of a SAFE
The main provisions of a SAFE agreement regulated by the aforementioned law include:
- the investor transfers the funds, and shares are issued upon condition fulfillment or conditions specified in the agreement;
- the company is required to issue shares within 60 days of fullfilling the conditions;
- the preemptive rights of existing shareholders do not apply under this framework;
- investment relations fall under the regulations of the Central Bank of Armenia;
- the agreement may include terms for provisions for the return of funds and interest payments, adding a layer of security for investors.
SAFE agreements are considered securities.
About SAFE
On of the main objectives of this legislation in Armenia is to create a legal framework that facilitates attracting investments into Armenian companies through SAFE agreements.
| SAFE agreement is an internationally recognized investment tool, used primarily for financing startups or companies in their early (pre-seed and seed) stages. |
This agreement is highly favored by business angels and venture capitalists because they provide a flexible, standardized mechanism that avoids the complexities of immediate valuation and equity issuance. A SAFE allows investors to inject capital into a company, usually a modest amount, with the understanding that if the company succeeds (through attracting significant investments, acquisition by a bigger firm, etc.), the investors receive a predetermined number of shares proportional to their investment. In the event of the company's failure (bankruptcy, liquidation, etc.), the invested amount is eligible for reimbursement, often granting investors a higher priority in payment over other creditors.
Lawyer's comment
Despite the progress made with this amendment to the Law, several questions remain unanswered or require further clarification. For instance, although SAFE contract has been adpoted specifically for joint-stock companies, there is ongoing debate about whether similar regulations should be extended to limited liability companies (LLCs). Many early-stage startups in Armenia prefer the LLC structure due to its simpler governance model and greater flexibility, raising concerns about the exclusion of these companies from SAFE agreements. Since a significant proportion of startups operate as LLCs, adapting this legal framework to include them could further enhance Armenia’s attractiveness as a hub for innovation and investment.
Author: Annie Davtian
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