This is an example of how the current accounting rules (codification of SAFB accounting standards or “ASC”) do not sufficiently take into account or take into account the reality of SAFEs in practice. 1The borrowing and equity version of KISS contains many of these features. SAFE holders never have a mechanism to impose a preferred share funding cycle and the resulting conversion of their invested funds into preferred shares. Safe owners have no way to force the startups they invest in to do anything. The decision whether or not to finance preferred shares and therefore whether or not to convert SAFEs into shares is entirely under the control of the company`s co-founders. Therefore, the future issuance of shares by the company, if it takes place, is totally voluntary on the side of startups. On the other hand, SAFE holders do not have a depreciation guarantee. Therefore, their investment cannot be considered adequate debt. The classification of debt would be contrary to the most fundamental principles of accounting and financial reporting. It would be misleading for investors and harmful to businesses. We must not abandon first principles and allow SAFEs to be considered as debts simply because accounting rules have not caught up with the reality of SAFEs in practice. CSA 718-10-25-8 says in part: “. an appeal option that is written on a device that is not considered a liability.

is also to be classified as equity. “To qualify for the classification of shares”, there must be no compensation in cash or make-whole provisions. There must be no cash statement or make whole provisions.¬†First, the reporting of SAFEs as liabilities has the effect of ensuring that the equity of these recognised companies is negative. This causes real harm to companies that need to be licensed by different public licensing authorities that tend to require equity that is declared positive. In addition, the classification of liability gives the impression that companies have an obligation to repay. This is not correct and gives investors false assurance..

Posted Tuesday, September 21st, 2021 at 2:59 pm
Filed Under Category: Uncategorized
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