SAFE, Convertible Note, Loan or LLC Units: What Should I Offer Family and Friends?

Start with one question: will you ever raise from venture capital or professional angel investors? If yes, be a C-corporation and offer a SAFE or convertible note, which postpones the valuation to the professional round and converts cleanly. If no, and the business will produce cash or be held for the long term, a loan, a revenue share, preferred stock with a dividend, or LLC membership units usually fit better, because a SAFE pays off only if there is a later priced round or a sale. Whatever you choose, offer everyone in the round the same terms and put them in writing.

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Reviewed October 21, 2026

The question that decides it

Most advice about SAFEs and convertible notes assumes a venture-backed startup. Most businesses raising from family and friends are not, and never will be. A restaurant group, a manufacturer, a services firm or a real estate business will produce cash and may never sell. For them, an instrument designed to convert in a future venture round can leave family investors holding something that never turns into anything.

So decide first: is a venture capital or professional angel round realistic in the next few years?

If you will raise venture capital

  • SAFE (simple agreement for future equity). The investor pays now and receives shares at the next priced round, usually with a valuation cap and sometimes a discount. No interest, no maturity date. Designed for C-corporations. Watch out: if no priced round or sale ever happens, the SAFE may never convert.
  • Convertible note. A loan that converts into shares at the next round, with interest and a maturity date. Gives investors a little more protection than a SAFE. Watch out: the maturity date can force a hard conversation if the round is late.
  • Common or preferred stock at a set price. Simple and final, but you must set a valuation now.

Venture investors overwhelmingly invest in Delaware C-corporations, so if you are an LLC, plan the conversion with counsel before that round.

If you won't

  • A loan. Fixed repayment with interest at or above the IRS applicable federal rate, so it is not treated as a gift. No ownership changes hands. Watch out: it must be repaid whether or not the business succeeds, and a bank lender may require it to be subordinated.
  • A revenue share. Investors receive a percentage of revenue until they have received an agreed multiple of their money. Suits steady-revenue businesses with no plan to sell. Watch out: it reduces cash flow while it runs.
  • Preferred stock with a dividend. Investors get priority and a stated return; common shareholders keep the upside. Onfolio Holdings raised one round as preferred stock with a 12% dividend to fund acquisitions of cash-flowing businesses.
  • LLC membership units. Investors become members and share in profits as the operating agreement sets out. Watch out: they receive a K-1 each year and may owe tax on allocated profit even when no cash is distributed, so include tax distributions. The operating agreement must be amended.

The family-specific test

  • Can you explain it in two sentences to someone who has never invested in a private company?
  • What happens if the business fails? A loan is still owed. Equity is not. Make sure each investor understands which they hold.
  • Same terms for everyone in the round. Different deals for different relatives cause family problems later.

Related questions

Is a SAFE or a loan from family a security?

A SAFE, a convertible note and equity are securities, so you still need an exemption, usually Rule 506(b), and a Form D. A loan can be too, depending on its terms. Why there is no friends-and-family exemption.

Can an LLC issue a SAFE?

The standard SAFE is written for corporations. An LLC version needs tailoring and careful tax work, which often makes a note or units simpler.

Can I convert my LLC to a C-corporation later?

Yes, and many companies do before a venture round. It has tax and legal consequences, so plan it with counsel and your accountant.

Can different rounds use different instruments?

Yes. A family round on a note and a later priced round are common. Within one round, keep everyone on the same terms.

Read next

Where to start

Choosing the security and its terms is the first decision in our Network Raise package, a fixed $15,000 for raises up to $1 million from people who know you.

Prepared to Raise is a service of Meraki Partners, LLC. This article is general information, not legal, tax or investment advice, and not an offer to sell or a solicitation to buy any security. Meraki Partners is not a broker-dealer, funding portal, investment adviser or law firm.