# SAFE, CCPS & Convertible Note Advisory

> The US-style SAFE has no legal status under Indian company law, so Indian startups use compulsorily convertible preference shares (CCPS) — including the CCPS-based 'iSAFE' — compulsorily convertible debentures, or convertible notes. A DPIIT-recognised startup can raise a convertible note of ₹25 lakh or more in a single tranche, convertible or repayable within ten years, without it counting as a deposit; foreign investors in such notes are reported in Form CN.

Practice: Startup Funding, ESOP & Valuation — https://www.industax.com/services/startup-funding/

The right instrument depends on who the investor is and what is being deferred. CCPS is the standard for priced and many unpriced rounds; notes are faster but available only to DPIIT startups above the ₹25 lakh threshold. For foreign investors, FEMA requires the conversion price or formula to be fixed upfront, and conversion can't happen below the fair value at issue.

Conversion of preference shares into equity isn't treated as a transfer for capital gains, and the holding period carries over — a useful point for investors planning exits.

## Key facts

| Item | Detail |
| --- | --- |
| SAFE | Not recognised — use CCPS-based structures |
| Convertible notes | DPIIT startups; ≥ ₹25 lakh per tranche; 10 years |
| CCPS tenure | Preference shares can't exceed 20 years |
| FEMA | Conversion formula fixed upfront; Form CN for notes |
| Tax on conversion | Preference to equity conversion is not a transfer |

## Who needs this

- Founders offered a SAFE by foreign investors
- Startups raising bridge rounds
- Investors structuring early-stage deals

## What's included

- Instrument selection
- Term drafting inputs (cap, discount, triggers)
- Companies Act and FEMA compliance
- Tax analysis for founders and investors

## Documents

- Proposed term sheet
- Articles and cap table
- Investor residency details

## Process

1. **Choose** — Instrument chosen for investor and timing.
2. **Document** — Terms and approvals prepared.
3. **Comply** — ROC and RBI filings completed.

## Also covers

- **SAFE / convertible structures advisory** — SAFE, iSAFE, CCPS, CCD and note comparison.

## FAQs

### Can an Indian startup issue a YC SAFE?

Not as is. The economic terms are usually replicated using CCPS, sometimes branded as an iSAFE.

### Who can issue convertible notes?

DPIIT-recognised startups, for amounts of ₹25 lakh or more in a single tranche.

### Is CCPS treated as FDI or debt?

Fully, compulsorily and mandatorily convertible instruments count as equity (FDI); optionally convertible instruments are treated as debt under FEMA.

## Official sources

- Ministry of Corporate Affairs — MCA21: https://www.mca.gov.in/
- RBI — Master Direction on Foreign Investment: https://www.rbi.org.in/Scripts/BS_ViewMasterDirections.aspx

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Canonical page: https://www.industax.com/services/startup-funding/safe-convertible-notes
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.