What are the conditions to closing of a Series A financing?
Takeaway: The "conditions to closing" are a final checklist of legal and administrative tasks that must be completed before the investors are obligated to wire their funds; a failure to satisfy these conditions can delay or even kill your financing.
You have negotiated and signed a term sheet, and all the definitive legal agreements have been drafted and finalized. You are on the one-yard line of your Series A financing. The final step before the money hits your bank account is the satisfaction of the "conditions to closing."
This is a specific section in the Stock Purchase Agreement that lists all the final "deliverables" and actions that must be completed before the investors are legally obligated to close the deal. Think of it as the final pre-flight checklist. While most of these conditions are standard and administrative, a failure to complete any one of them can give your investors the right to delay the closing or, in a worst-case scenario, walk away from the deal entirely.
Standard Conditions to Closing
The list of closing conditions is generally standard and non-controversial. The company is typically required to deliver the following items to the investors' counsel:
A Secretary's Certificate: A formal certificate signed by the company's secretary that attaches all the key corporate documents, such as the (now final) Amended and Restated Certificate of Incorporation and the Bylaws.
Good Standing Certificates: A recent certificate from the Delaware Secretary of State proving that the company is in "good standing" and has paid its franchise taxes.
Board and Stockholder Approvals: Evidence that the company's Board of Directors and stockholders have formally approved the financing transaction.
Signed Definitive Agreements: Fully executed signature pages for all the definitive agreements from the company and all other required parties.
A Legal Opinion (if being issued): A formal legal opinion from the company's counsel, addressed to the investors, which provides certain standard legal assurances about the company and the transaction.
In turn, the investors are required to deliver their executed signature pages and, of course, the wire transfer for the purchase price of their shares.
Managing the Closing Process
The process of satisfying these conditions is managed by the law firms for the company and the investors. They will create a detailed "closing checklist" that tracks the status of every single required document. The paralegals and junior associates at the firms will work behind the scenes to assemble all the necessary paperwork into a final closing volume.
While this process is largely managed by your lawyers, it is critical for you as a founder to be responsive and available. You will be needed to provide information and to sign the final documents. Any delay on your part can delay the closing and the arrival of the much-needed capital.
Once all the conditions are met and all documents are in place, the lawyers for both sides will formally agree that the closing can occur. The investors will then be instructed to wire the funds, and your Series A financing will be officially complete.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.