In Australia, some SAFE bonds do not provide an valuation cap and simply apply a discount on the issue price of this series of shares. However, when an valuation ceiling is provided, the number of shares issued to a holder would generally be the higher reference amount that will be divided for the SAFE rating: an important aspect of a SAFE is that it does not create or reflect any debt between the parties. In practice, a SAFE is an agreement that can be used between a company and an investor. The investor invests money in the business with a safe. In exchange for the money, the investor will have the right to acquire shares in a future share round (if one of the shares is ahead of schedule), subject to certain parameters set out in the SAFE. For startups in the start-up phase, we also recommend the adoption of a type of “Dynamic Equity Split” known as “Slicing Pie.” The advantage of this concept is that the different contributions of the co-founders have no fixed value. It relies heavily on “relative value” until the equity of third-party investors is raised. It is similar to the concept of equity deed, but leaves the actual allocation of equity at a later date and not in advance. For new businesses, we recommend an Equity Deed agreement, where co-founders benefit from equity in the company and can only keep it if they reach a certain number of milestones over time. If they leave prematurely, some of their equity is “recovered” to reduce their participation in something that reflects their actual contributions. This only works if the business is relatively new and has not yet actually realized material value. It doesn`t work for people who are put into the structure on the track. However, in the meantime, it may be necessary to review all financing agreements (debt or equity) that deviate from traditional vanilla debt or common shares.
This would be particularly the case given the need to complete the tax positions to be reported and the need to advise firB on transactions to be reported, which are not subject to ATO tax warnings. In a corporate consulting context, the advisor must account for taxable income on the market value of the equity received. If equity cannot be assessed, the IRS will pay attention to the “value of the services provided” when assessing the tax. For future companies, we recommend a capital plan corresponding to the ATO`s start-up concessions, in order to avoid tax burdens. To qualify for these concessions, the company must be less than 10 years old and have less than $50 million in sales. Some significant restrictions on concessions are that only common shares apply, that the “discount” that may be granted to market value is limited and that the person receiving the equity may not hold more than 10% of the business (in total).