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You have decided to raise capital to help move your company into its next phase.

You’ve found investors, signed a term sheet with the investors and have agreed on the legal documents (including a share subscription agreement and a new shareholders agreement (or a deed of accession to the existing shareholders agreement if applicable)). This article sets out the practical steps involved in capital raising.

Completion or closing occurs on a pre-agreed day between the company and the investors (known as the Completion Date). The Completion Date will usually be set out in the share subscription agreement. At Completion, the investors pay their subscription money to the company and the company issues shares to the investors (by way of issuing share certificates).

1. What Happens Before Completion?

Documents for Investors

The relevant legal documents should be circulated to the investors to sign (but left undated). These documents will generally comprise of the following:

  • Share subscription agreement; and
  • Shareholders agreement (or deed of accession to the existing shareholders agreement together with a copy of the shareholders agreement for their information).

We suggest you circulate the documents by email well in advance to your investors so they can return signed copies before the Completion Date.

This gives you time to ensure you have all the necessary signatures ready for completion. When circulating the documents, you should also ask the investors to transfer the subscription money to your bank account on or before the Completion Date. We suggest you set out the bank account details in the email. You may also want to send a reminder a couple of days before the Completion Date to ensure people do not forget.

Documents for the Company

You should then review the company’s constitution and (if applicable) shareholders agreement to determine what action is needed to issue new shares (usually a board or shareholders resolution). Shareholders may also need to waive their pre-emption rights by signing a waiver of pre-emption rights. Your lawyer should be able to assist you in determining what is required and draft the necessary resolutions and waiver of pre-emption rights. Ensure you leave sufficient time for all shareholders to sign the waiver and pass any resolutions before completion.

The company should also prepare the share certificates issued to each investor at completion (again your lawyer can do this on your behalf). The share certificates can be signed (but left undated) pending completion.

2. What Happens At Completion?

Completion occurs on the Completion Date once the company has received all subscription money and all signature pages have been pre-positioned ready for closing. At Completion, the following events are all deemed to happen simultaneously:

  • The subscription monies will be released to the company; and
  • The signed share subscription agreement, shareholders agreement/deeds of accession and share certificates are dated and released. Copies of the signed and dated documents should be circulated to the investors for their records.

3. What Happens After Completion?

After Completion, the Company must:

  • Update the members register of the company to include the details of each investor; and
  • Update ASIC of the new shareholders and their shareholdings by lodging an ASIC Form 484.

Again your lawyer can assist with these company secretarial steps.

Key Takeaways

Raising capital is a very exciting time for all involved. To ensure a smooth closing, we suggest you create a checklist of all of the matters that need to be achieved at the different stages of the capital raising process and follow that list religiously.

If you have any queries regarding any part of the capital raising process or you require assistance in drafting or reviewing any legal documents or undertaking the company secretarial steps involved, get in touch with our startup lawyers on 1300 544 755.

Working on a startup? Download LegalVision’s Startup Manual – a free 60-page manual featuring 10 case studies and tips and tricks from Australia’s leading VCs and startups.

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