In our previous blog posts we had mentioned the importance of getting prepared for fundraising at an early stage of the company. In fact, when you are incorporating your company, you should keep in mind all the administrative aspects as they will play an essential part in your future relationship with your investors.
In most (if not all) fundraising processes (either via debt or equity), satisfactory due diligence by the investor is a condition for closing the round. If a company is missing good corporate housekeeping habits, the diligence phase will take longer than expected, and the financing of the company will most probably be delayed. One of the essential parts of this due diligence piece includes legal review that will mainly cover the following aspects (please note that this list may vary according to the type of fundraising, your business, company type, size of your company and your investors’ needs for their operations);
- Corporate matters;
- articles of association, shareholders' registry or equivalent document, information on any stock options, warrants, convertible loans, other rights to subscribe for or acquire shares, certificate of registration, any changes of company name, any agreement regulating the relationship between the shareholders of the company and related party transactions, capitalization table, agreements and resolutions of mergers, demergers since the incorporation of the company, annual accounts and reports,
- Financing and debt;
- loan agreements, guarantees, collaterals and similar commitments, all securitisation documents, overview of the company’s finance structure,
- Employee matters;
- share/option plans, employment and service contracts including intellectual property assignments, organisation chart with a list of employees and their positions, personnel guidelines,
- Material contracts;
- overview of the company’s contracts with its suppliers and customers and standard terms and conditions, material agreements, information of any breach or deviation from agreements,
- Regulatory matters;
- permits, licences which the company needs to conduct its business,
- Intellectual property and information technology;
- list of trademarks, open source codes, intellectual property ownership, software licenses, patents, domain names, IT systems and policies, product research and development process, any infringements,
- Insurance;
- list of insurance policies, any insurance claims,
- Litigation and claims;
- information of claims, disputes, litigation or arbitration including employment and governmental issues,
- Tax matters;
- confirmation that all tax filings have been made in due time and are in accordance with applicable laws
Your investors are responsible for their limited partners, and they need to be diligent about the legal capacity of the business they are planning to invest in. This process is beneficial for the company itself as well. It is very understandable that the founders are focused on their project and trying to develop the best product there is, but for a smooth operation having a strong legal base is essential and will help you to start off on the right foot.
