What are the conditions to the closing of a Series A financing?

Investors conduct due diligence before making the final decision of whether to purchase shares in the company or walk away. Even if it is determined that a company presents a good investment opportunity, some issues may emerge during the process of due diligence. If they can be remedied or amended they won’t break the deal, but make it conditional of the fulfillment of promises and obligations. Also the companies may have to undergo certain regulatory compliance and put other documents in order before they can accept the investment. It does not mean that something was not done before. It means that either additional legal requirements kick in in connection with the contemplated deal or investors want to put protective measures in place to ensure their investment is a sound one.

 

The stock purchase agreement is signed before the closing and a number of items must be satisfied before the closing. The closing conditions may include:

 

§  The Certificate of Incorporation has been amended;

§  Securities laws have been complied with;

§  Ancillary agreements (such as intellectual property assignment agreements, voting agreements, employment agreements with key personnel) have been executed and delivered;

§  Minutes of the shareholder meeting and board approval of transaction have been delivered;

§  A legal opinion has been delivered;

§  Necessary consents and waivers have been obtained; and

§  Additional shares are issued if required. 

 

Money can exchange hands at closing or wire transfers may be sent to a trust account of the company’s attorney prior to or on the closing date. Once all documents are executed at the closing, the counsel releases the funds. If funds have not been held in escrow, the investors may initiate wire transfers directly to the company and the financing is deemed closed when the company has received the funds.

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