What does the legal opinion cover?
Takeaway: A legal opinion in a financing is a “comfort letter” from company counsel to the investors, assuring them on basic legal points about the company’s status and the validity of the shares. While not required in every deal, legal opinions are delivered in roughly half of venture financings and usually increase legal costs by around $10,000.
In many venture financings, one of the potential “conditions to closing” is the delivery of a legal opinion from the company’s counsel to the investors. For a founder, this can sound intimidating. In practice, legal opinions are highly standardized, narrow in scope, and primarily serve to confirm that the mechanics of the financing are legally sound.
Legal opinions are not universal—roughly half of Series A and later financings require them. Some investors insist, while others are comfortable closing without one.
The Purpose of a Legal Opinion
The legal opinion functions as a final diligence step for the investors. It is a formal statement from outside counsel, upon which investors are entitled to rely, confirming that the company is properly formed and authorized to issue the securities being purchased.
What the Opinion Covers
A typical legal opinion for a Series A is intentionally limited. It covers:
Corporate Status: Confirmation that the company is a duly incorporated Delaware C-Corp in good standing.
Corporate Power and Authority: Assurance that the company has the power to execute the financing documents and carry on its business.
Capitalization: A statement of the number of authorized shares of Common and Preferred Stock. This is typically the most important component of a legal opinion.
Valid Issuance of Shares: Confirmation that the Series A Preferred Stock, when issued and paid for, will be validly issued, fully paid, and non-assessable.
No Conflicts: Confirmation that entering into the financing agreements does not conflict with the company’s charter or bylaws.
What the Opinion Does Not Cover
It does not weigh in on the merits of the investment, confirm compliance with all laws, validate the company’s financials, or certify the accuracy of the cap table. Its scope is deliberately narrow, focused only on the corporate mechanics of the financing.
Market Practice and Cost
Because preparing an opinion requires the law firm to perform additional diligence—and because the firm is putting itself on the line legally when it makes these representations—legal opinions usually add around $10,000 in extra legal fees. Firms must review corporate records, confirm filings, and validate details before they are comfortable signing an opinion letter.
As a result, many investors waive the opinion to save time and cost, while others—particularly more traditional funds—will still request it. Founders should expect that legal opinions may come up in about half of Series A deals and should budget accordingly.
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.