Signing a YC SAFE Through a Hong Kong Company: What the US Form Leaves Out

Most Hong Kong founders raising their first money sign a Y Combinator post-money SAFE. It is the market standard, it is free, investors recognise it, and it takes a week off the timetable compared with a priced round.

It is also drafted for a Delaware corporation. Nothing in the form is wrong for Hong Kong, but the form assumes a company law that is not yours. Four things have to be done on top of it, and in practice three of them are easy to miss. The one that matters most costs nothing if you handle it on the day you sign, and is awkward to fix two years later when you are trying to close a Series A.

1. Your directors need members’ approval before they can sign

This is the point to get right, and it is the one most easily missed.

Section 140(1) of the Companies Ordinance (Cap. 622) says the directors of a company must not exercise any power to allot shares, or to grant rights to subscribe for or to convert any security into shares, except in accordance with section 141.

A SAFE is precisely a right to subscribe for shares on a future event. So granting it engages section 140(1)(b) on the day you sign, long before any shares exist. Section 141 supplies the cure: the company gives approval in advance by resolution of the members.

Section 140(2) contains four exceptions, and it is worth knowing that none of them helps you. They are: a pro-rata offer to members, a pro-rata bonus issue, shares a founder member agreed to take by signing the articles, and an allotment made under a right that was itself granted with section 141 approval. A SAFE round to outside angels is none of the first three.

If you have read UK material, unlearn one thing. The UK Companies Act 2006 section 550 lets the directors of a private company with only one class of shares allot without member authority. Hong Kong has no equivalent. Section 140(2) is exhaustive on its face. A single-class Hong Kong company gets no free pass.

What happens if you sign without the resolution? Section 140(4) and (5) make it an offence for a director who knowingly contravenes the section, carrying a fine at level 5 and six months’ imprisonment. Section 140(6) is the more useful provision to understand, though: nothing in section 140 or 141 affects the validity of the allotment. So the shares are good. The exposure is personal to the director, and it is the kind of thing that surfaces in diligence on your next round, in a questionnaire you have to answer honestly.

One resolution, drafted properly, covers the conversion

Read section 140(2)(d) together with section 141(5) and you get a result that saves you real work later.

Section 140(2)(d) takes an allotment made under a previously approved right outside section 140(1) altogether. Section 141(5) separately preserves the directors’ power to allot after an approval has expired, where the shares are allotted under an agreement the company entered into while the approval was live and the approval allowed for shares being allotted after expiry.

Put together: one members’ resolution, passed when you sign the SAFE and drafted properly, covers the conversion allotment however many years later it happens. You never have to go back to the members at the priced round.

Drafted badly, you get none of that. A resolution that approves “the allotment of shares” and says nothing about the grant of a conversion right does not satisfy section 141 for the grant, and does not engage section 141(5) for the later allotment. You then need a fresh resolution at conversion, from a members’ register that by then may include people who are harder to reach than the two of you were at signing.

Section 141(3) also puts a shelf life on a general approval. If the company must hold an AGM, the approval expires at the conclusion of the next one, or when the period for holding it expires, whichever is earlier. If it is not required to hold one, the approval expires on the date stated in it, and that date cannot be more than twelve months out. So a general approval is not a standing authority. The section 141(5) wording is what carries you past the expiry, and it only works if the resolution contemplates it.

2. There is no pre-emption right unless your articles say so

Hong Kong has no statutory pre-emption right on a new issue of shares. There is no Cap. 622 equivalent of UK Companies Act 2006 section 561. Pre-emption on a new issue exists only if someone wrote it into the articles.

The only pre-emption provision in Part 4 is section 160, and it does something different: where the articles already give a right of pre-emption, section 160 makes that right enforceable against a person who receives shares by transmission by operation of law, on a death or a bankruptcy. It protects an existing right. It does not create one.

Two consequences.

For the founder. If your articles are silent, a SAFE can convert into new shares with no pre-emptive offer to anyone. That is usually what you want, and it is one fewer step. But check, rather than assume: if your incorporation agent used articles with a pre-emption clause, or if a previous investor negotiated one in, the clause governs and the conversion has to work around it. Our guide to shareholders’ agreements in Hong Kong covers how these clauses interact with investor rights.

For the drafting. Section 140(2)(a), the pro-rata offer exception, gets misread as a pre-emption provision. It is the reverse. It relieves the directors of needing a members’ resolution when they happen to offer pro rata. It does not require them to offer pro rata to anyone.

3. The prospectus question is not the one founders ask

The question founders ask is whether a SAFE is a “debenture”. It is an interesting question and largely beside the point.

“Debenture” in both Cap. 622 and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) means debenture stock, bonds and any other debt securities, whether or not secured. The definitions are word for word identical. A post-money SAFE has no principal repayable, no interest and no maturity date, so on that language it is not a debt security.

But Hong Kong’s prospectus regime lives in Part II of Cap. 32, and it bites through the definition of “prospectus” in section 2(1), which catches a document that offers shares in a company to the public for subscription or purchase for cash or other consideration. A SAFE offers shares. It engages the definition through the shares it promises, whatever you decide the instrument itself is. So resting your position on characterisation is building on sand.

What actually protects a normal seed round is the Seventeenth Schedule. Its Part 1 lists offers that fall outside the definition of “prospectus” entirely, so there is nothing to register under section 38D and no allotment prohibition under section 43. The two that matter here are section 1, offers to professional investors within the meaning of the Securities and Futures Ordinance, and section 2, offers to not more than 50 persons.

Three conditions founders miss.

• The warning statement is an obligation, not an exemption. Most of the Part 1 exclusions, including the 50-person one, require prescribed wording from the Eighteenth Schedule. You have to put it in the document. An offer that would otherwise be excluded, without the statement, is not excluded.
• Offers aggregate over twelve months. Part 4 of the Schedule aggregates offers across a twelve-month period for the total-consideration test. This is the trap built into how SAFEs are actually used. Founders issue them one at a time as angels say yes, over a year, and treat each as a fresh start. They are counted together.
• The monetary exclusions cannot be stacked with the others. The exclusions based on total consideration and on minimum denomination sit on their own. You cannot run a 50-person offer alongside a small-consideration offer and treat them as independent.

The figures attached to the monetary exclusions, and the professional investor thresholds under the Securities and Futures (Professional Investor) Rules (Cap. 571D), should be checked against the current consolidated legislation at the time of the round rather than taken from any article, including this one.

A separate point, and one that needs its own analysis: section 103 of the Securities and Futures Ordinance prohibits the issue of advertisements, invitations and documents relating to investments, with its own set of exemptions. It runs in parallel to the Cap. 32 regime and can catch an offer document that escapes it.

4. No par value, so the discount is not a problem

Section 135 of Cap. 622 is two lines: shares in a company have no nominal value, and that applies to shares issued before the provision commenced as well as after. Par value was abolished when the Ordinance commenced on 3 March 2014.

This disposes of a worry founders bring from other jurisdictions. A valuation cap and a discount rate are designed to give the SAFE holder a conversion price below the priced-round price. If an earlier round went out at HK$1.00 and the SAFE converts at HK$0.40, there is no issue at a discount, because with no nominal value there is nothing to be at a discount to. The whole consideration received is share capital. There is no share premium account and no unpaid-capital liability arising from the price difference. Our guide to convertible notes and SAFE agreements sets out how the cap and discount interact commercially.

Do not confuse this with section 147, which prohibits a company applying its shares or share capital in payment of a commission, discount or allowance to someone for subscribing or for procuring subscriptions. That is a provision about paying a placing agent in shares. It has nothing to do with your issue price.

5. The filing that puts your SAFE terms on the public record

Section 142(1) requires a limited company to deliver a return of allotment, Form NSC1, to the Companies Registry within one month after an allotment. The company and every responsible person commit an offence for failure, at a fine at level 4 and a further fine of $700 for each day the offence continues. The Court can extend the month, but only where the failure was accidental or due to inadvertence, or where it is just and equitable.

Two more deadlines run alongside: section 143 requires the allotment to be entered in the register of members within two months, and section 144 requires share certificates to be ready for delivery within two months unless the conditions of issue say otherwise.

Here is the part founders do not expect. If the SAFE is settled by converting the instrument itself as the consideration for the shares, rather than by the investor paying fresh cash at conversion, that is an allotment wholly or partly for non-cash consideration. Section 142(2)(d)(iii) then requires the return to contain particulars of the contract for the consideration in respect of which the shares were allotted. Those particulars go on the public file. If the contract is not in writing, prescribed particulars go in instead.

So the commercial terms of your SAFE can end up publicly searchable at the Companies Registry. That is worth knowing before you agree a side letter you would rather not publish, and it is worth deciding deliberately whether conversion happens against the instrument or against fresh cash.

One absence is worth noting: Hong Kong has no equivalent of UK Companies Act 2006 section 593, so there is no independent valuation requirement for a non-cash allotment. The obligation is disclosure, not valuation.

6. No stamp duty on the issue

Hong Kong stamp duty is a tax on documents, and the chargeable heads are conveyance on sale, agreement for sale of immovable property, lease of immovable property, and transfer of Hong Kong stock. An allotment is not a transfer: it creates a share rather than moving one, and there is no contract note for a sale or purchase.

So no stamp duty arises on issuing shares when a SAFE converts, and none on the SAFE itself, which is a subscription agreement and not within any head of charge.

The open question is a later transfer of the SAFE by the investor to someone else, which turns on whether the instrument is “stock” for stamp duty purposes. If your SAFEs are transferable, that is worth resolving before the first transfer rather than after.

For completeness, the rate on a transfer of Hong Kong stock has been 0.1% on each of the sold note and the bought note since 17 November 2023, having been 0.13% from August 2021.

What to do when you sign

• Pass a members’ resolution before or at signing. Have it approve the grant of the right to subscribe for or convert into shares, not merely a future allotment, and have it expressly contemplate shares being allotted after the approval has expired.
• Read your articles for a pre-emption clause on new issues. If there is one, decide now how conversion will deal with it.
• Work out which Seventeenth Schedule exclusion you are relying on, put the Eighteenth Schedule warning statement in the document, and keep a running list of every SAFE issued in the last twelve months.
• Decide whether conversion will be against the instrument or against fresh cash, and accept the Registry disclosure consequence if it is the former.
• Diarise the one-month NSC1 and the two-month register and certificate deadlines against the conversion date, not the signing date.

None of this makes the YC form unusable in Hong Kong. It makes it the first of two documents rather than the only one.

This article states the position as at October 2026. Statutory references are to the Companies Ordinance (Cap. 622) unless otherwise stated.

Alan Wong LLP advises founders and investors on Hong Kong seed and venture financings, including SAFEs, convertible instruments, shareholders’ agreements and priced rounds.

To discuss how this affects your company, please get in touch.