Words and Phrases - "bond"

A SAFE (Simple Agreement for Future Equity) is a financing agreement in which an investor provides funds to a company in exchange for the right to receive shares, upon the occurrence of a future event, generally a future financing or a winding-up event, at a preferential price. In doubting that the SAFE was a bond, debenture, or note, or a share (so that the conversion into shares on the future event would not come within s. 51(1), CRA stated:

For the instrument to constitute a "bond," "debenture" or "note" within the meaning of subsection 51(1), the CRA generally considers that it must be established to be a debt owed by the issuing corporation, with a principal amount payable.

To the extent that, until the Issuance Event, the SAFE is not considered to be a share under the applicable corporate statute and does not confer any of the rights or impose any of the obligations generally associated with a share under such statute, the CRA would take the position that the instrument is not a share within the meaning of subsection 51(1).

To the extent that it is reasonable to conclude that the intention of the parties was not to create a debt and that the SAFE does not refer to any amount of principal, any interest, any maturity date, any terms of repayment and that it confers a priority ranking lower than that of the issuer's ordinary creditors, the CRA would take the position that the instrument does not constitute an "bond." "debenture" or a "note" within the meaning of subsection 51(1).