All CP’s and CS’s
CP’s stands for Condition Precedent and CS’s stands for Conditions subsequent. The word conditions refer to some facts or event which may happen or may not happen in future. There are chances that event may happen but it cannot be predicted with surety. Let us understand the meaning of CP’s and CS’s with a simple example. Imagine your father promises you a sports bike in case you pass the exam by more than 90% marks but he also places a condition that if found driving it more than 80 kmph he will take the motorcycle back. There are two conditions attached to the above offer first condition is known as Condition Precedent (CP) which are prerequisites to achieving the objective and the second condition is known as Condition Subsequent (CS) which is required to maintain the objective once you achieve it.
NEED OF THE HOUR
Almost all who are tracking the ecosystem of start-ups are well aware about the ways to raise funding for the company. But every sweet deal comes with many if’s and but’s which many new gen entrepreneurs are unaware of. Both prior to and subsequent to raising finance for the company there are various conditions which needs to be fulfilled in order to avoid non compliance penalties and provide the prospective investors a sense of security and valid agreements and share certificates. There are certain steps which needs to be followed in case of raising funding from prospective investors. A full deal takes around 50-60 days to close down fully.
Steps To Be Followed
The very first step is to get the Term Sheet signed which contains the basic terms and conditions for the proposed investment. Due Diligence by prospective investors forms the second step in which prospects check the companies from inside out so that they do not miss important material information. The third step is to compile all relevant points and document them to enter into a definitive agreement. Next step includes identifying Conditions Precedent (CP) which are the most important items that a start-up company must fulfil before closing the deal, i.e., receiving the investment amount into the bank account of start-up company. The investor who wants to invest in the company may put certain conditions which need to be fulfilled before remittance of final funds. These conditions may differ from investor to investor.
COMMON CONDITIONS PRECEDENT (CP’S):
- A complete report due diligence (Financial and Legal) of the company to be completed.
- Submission of a detailed business plan and financial budget as to what company plans to do with the money,
- Getting all the required permissions, consents and approvals for smooth running of business activities, amending the company’s articles of association and memorandum of association, getting all board approvals and board resolution to ensure the effectiveness of transaction.
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In majority cases, fulfilling some conditions such as obtaining approvals and licenses take much time, ranging from weeks to months. In such cases, the start-ups negotiate and keep limited items in the list of conditions precedent (CP’s) and include items in ‘Conditions Subsequent (CS)’ list which may require additional time to get completed.
These CP’s and CS’s may vary from deal to deal, investor to investor, person to person. Various complexities may arise if proper guidance is not sought in proper work. We have a team of dedicated experts who are always ready to help you for smooth closure of the deal.s