Early-stage fundraising is a critical milestone for startups. The investment instrument chosen at this stage can have a significant impact on founder dilution, investor rights, future financing rounds and the company’s corporate structure. One instrument that has become increasingly common in international startup ecosystems is the Simple Agreement for Future Equity, or SAFE.
A SAFE allows an investor to provide capital to a company today in exchange for a contractual right to receive equity in the future, generally upon the occurrence of a specified financing, liquidity event or other trigger. A SAFE may provide for a valuation cap, a discount, or both. Unlike a conventional convertible note, a SAFE is generally not structured as debt. It typically does not carry interest, have a maturity date or create a conventional repayment obligation merely because time has elapsed.
The simplicity of a SAFE, however, can be somewhat deceptive. The SAFE may be relatively simple to sign, but the more important legal question is how the contractual rights created by the SAFE will ultimately be converted into legally recognised equity. In the UAE, this analysis becomes particularly interesting because mainland UAE, ADGM and DIFC operate under different corporate law frameworks.
Mainland UAE: The Position Has Changed
The mainland position has evolved significantly following Federal Decree-Law No. 20 of 2025, which amended the UAE Commercial Companies Law. Among other changes, the amendments introduced greater flexibility around different classes of interests in mainland LLCs, including differentiated rights, subject to the applicable requirements.
This development is particularly relevant for venture capital transactions. Historically, one of the challenges for mainland startups seeking international-style venture capital structures was the limited flexibility around differentiated equity rights. The amended framework provides greater scope for structuring different classes of interests and therefore makes the potential equity outcome of a SAFE more compatible with sophisticated investment structures.
There is, however, an important distinction. The Commercial Companies Law does not establish a statutory investment instrument called a SAFE. A SAFE therefore remains primarily a contractual arrangement between the company and the investor. The fact that the law now provides greater flexibility around different classes of interests does not mean that a US-style SAFE can simply be adopted without modification.
The analysis should therefore be divided into two stages. First, what contractual rights does the investor obtain when the SAFE is signed? Second, when the conversion event occurs, how will those contractual rights be translated into legally recognised equity in the company? The second stage needs to comply with the company’s constitutional documents, applicable corporate law and relevant registration and approval requirements.
ADGM: A Different Corporate Framework
ADGM presents a different legal environment. Its Companies Regulations provide a sophisticated corporate framework for companies limited by shares, including provisions dealing with different classes of shares, rights attached to those classes and variation of class rights.
This provides considerable flexibility for venture capital structures. Where a SAFE is intended to convert into a particular class of shares carrying differentiated economic or governance rights, the corporate framework can accommodate such structures, subject to the company’s constitutional documents and applicable legal requirements.
However, it is important not to describe this as ADGM having a statutory SAFE regime. A SAFE remains a contractual investment instrument. The distinction is that ADGM’s corporate framework provides a well-developed mechanism for implementing the equity structure contemplated by the contractual arrangement.
DIFC: Similar Flexibility, Different Legislation
DIFC similarly provides a sophisticated corporate environment for venture and investment transactions. Under the DIFC Companies Law, companies can create different classes of shares, subject to the company’s Articles and the applicable statutory framework. DIFC also has its own contractual framework, including the DIFC Contract Law.
Accordingly, a SAFE can be structured as a contractual investment arrangement while the eventual equity rights can be accommodated within the company’s corporate structure. As with ADGM, however, it would be inaccurate to suggest that DIFC has enacted a specific statutory SAFE regime. The relevant advantage is the flexibility of the corporate and contractual framework within which the SAFE can operate.
The Real Legal Issue Is Conversion
Regardless of whether the company is incorporated in mainland UAE, ADGM or DIFC, the conversion mechanism is one of the most important parts of the SAFE.
Consider a startup that raises USD 500,000 under a SAFE with a USD 5 million valuation cap. Two years later, the company completes a priced financing at a USD 10 million valuation. The SAFE may allow the investor to convert at the lower contractual valuation cap.
But that immediately raises several legal and commercial questions. What class of shares will the investor receive? How will the number of shares be calculated? What happens to fractional interests? How are other SAFEs treated? Does the company require shareholder approval? Do the constitutional documents need to be amended? How will the resulting ownership be reflected in the company’s corporate records?
These questions cannot be answered by looking at the SAFE in isolation. They depend on the company’s jurisdiction, legal form, existing capital structure and constitutional documents.
Valuation Caps and Dilution
The valuation cap is often one of the most commercially significant provisions in a SAFE. Founders should therefore avoid looking at the SAFE simply as the amount of money raised.
For example, a startup could issue one SAFE for USD 500,000 at a USD 5 million valuation cap, another for USD 1 million at an USD 8 million cap, and a third for USD 500,000 with a 20% discount. Although the company has raised USD 2 million, that figure alone does not tell the founders what their eventual dilution will be.
The outcome depends on the conversion mechanics, the company’s fully diluted capitalisation, other convertible instruments, option pools and the definitions used in each SAFE.
This is why SAFE drafting and cap table modelling should be treated as one exercise. The legal document should accurately reflect the economics shown in the company’s fully diluted capitalisation table.
What Happens if the Company Is Sold Before Conversion?
Another provision that deserves careful attention is the treatment of a liquidity event before conversion.
Suppose a startup raises USD 1 million through SAFEs and is subsequently acquired before completing a priced financing. What does the SAFE investor receive?
The answer depends on the contractual terms. The SAFE may provide for a payment based on the investment amount, a specified return, or an amount calculated by reference to the investor’s hypothetical equity position.
The document should therefore clearly address transactions such as a sale of the company, merger, change of control, asset sale and liquidation. Treating these provisions as standard boilerplate can lead to materially different economic outcomes depending on the drafting.
SAFE Investors Are Not Necessarily Shareholders
Another important distinction is between contractual rights under the SAFE and rights attaching to actual equity.
A SAFE investor generally does not become a shareholder simply because the SAFE has been signed. Unless separately agreed, the investor may therefore not have the same voting, governance or information rights as an existing shareholder.
The parties should consider whether the SAFE should contain contractual rights relating to information, participation in future financings, pro rata investment, transfer, consent matters and other investor protections.
These rights should also be considered alongside the rights that will apply after conversion. A well-drafted SAFE should make clear where the investor’s contractual rights end and where its shareholder rights begin.
The Constitutional Documents Matter
A SAFE should never be reviewed in isolation from the company’s constitutional documents.
For example, if a SAFE states that the investor will receive “preferred shares” upon conversion, the parties need to understand precisely what those shares mean under the relevant jurisdiction. What voting rights will they carry? What economic rights will apply? Will they have liquidation preference? Can the company legally create that class? Do the Articles or Memorandum need to be amended? Are shareholder approvals required?
The answers may differ between mainland UAE, ADGM and DIFC. This is why jurisdiction-specific drafting is important even where the commercial SAFE terms are broadly similar.
So, Which UAE Jurisdiction Is Relevant?
The comparison should not simply be reduced to mainland UAE versus ADGM or DIFC.
Mainland UAE now provides considerably greater flexibility for sophisticated equity structures following the 2025 amendments to the Commercial Companies Law. ADGM provides a common law-oriented corporate framework with detailed provisions dealing with share classes and class rights. DIFC similarly provides statutory flexibility around different share classes within its corporate framework.
The key difference is therefore not whether one jurisdiction has “SAFEs” and another does not. None of these jurisdictions has adopted the SAFE as a standalone statutory instrument.
The more useful question is how effectively the contractual SAFE can be integrated into the company’s corporate structure and ultimately converted into the intended equity rights.
What Should Founders and Investors Take Away?
For founders, the key considerations are not simply how quickly a SAFE can be signed or how much money it raises. Founders should understand the potential dilution, the conversion mechanics, the treatment of existing SAFEs, the rights attached to the eventual equity and what happens if the company is sold before conversion.
For investors, the key question is equally important: what contractual right is actually being acquired, and how will that right translate into equity? The investor should understand the conversion trigger, valuation methodology, exit treatment, other outstanding instruments and the class of equity it is expected to receive.
The UAE’s SAFE landscape is therefore becoming more sophisticated, but the underlying legal principle remains the same: a SAFE should be assessed not only as a financing contract, but also as a mechanism for creating future equity.
For a UAE startup, the real question is not simply whether a SAFE can be signed.
It is whether the contractual rights agreed today can be translated into the intended equity, economic and governance rights when the SAFE converts.
That is where the legal anatomy of a SAFE really matters.
Part of ATB Legal’s Corporate & Commercial practice.