Understanding The Nuances Of Signing And Closing In Investment Transactions

The following entrackr link

https://entrackr.com/2022/03/funding-and-acquisitions-in-indian-startups-this-week-07-mar-12-mar/

states in its introductory sentence that – “This week 32 Indian startups raised funding, of which 26 received a total of about $1858.59 or $1.85 billion”.

Now, let’s try to understand the above statement from a signing and closing perspective in investment transactions.

In any investment transaction the parties enter into multiple agreements including the share subscription and shareholder’s agreement (Investment Agreements) that provides for and records inter alia the rights and obligations of the shareholders and, the rules governing the inter se relationship between the company and its shareholders.

As such, the date of undersigning the Investment Agreement is referred to as the signing date and/or the execution date.

In the event the Investment Agreement is signed by the parties on different dates, unless otherwise a specific date is provided for in the Investment Agreement, the party which signed the Investment Agreement on the latest date, that date will be considered as the signing/execution date for the said investment Agreement.

On signing/execution date of the Investment Agreement, the parties only agree to be contractually bound to undertake all actions, as per the terms of the said Investment Agreement, to successfully lead to closing – only upon successful completion of certain milestones/CP’s in the Investment Agreement.

It is pertinent to note here that, it is because of these very conditions precedent that are required to be fulfilled (mostly by the Company and the promoters), to the satisfaction of the investors, that there is a gap between the signing/execution date and the closing date, in an Investment Agreement.

Therefore, if there are no conditions to be fulfilled in an Investment Agreement post its signing/execution; in such Investment Agreement the signing/execution date and the closing date, can be achieved on the same date.

Hence, the day of actual inflow of funds in a company by the investor(s) and the simultaneous issuance or actual transfer of shares by the company to the investor, is referred to as closing.

Hence, basis the above understanding now, lets revisit the statement from the link above:

“This week 32 Indian startups raised funding, of which 26 received a total of about $1858.59 or $1.85 billion.”

So now when we read the above statement, we can understand that – this week 32 Indian startups successfully signed/executed the Investment Agreement with their respective investors, out of which 26 successfully closed the Investment Agreement for the respective startups to receive funding from their relevant investors, in lieu of the said startups issuing securities to their investors.

This article is a part of a series called “UNDERSTANDING THE NUANCES OF SIGNING AND CLOSING IN INVESTMENT TRANSACTIONS”.

Stay Tuned for the next part where we will discuss exactly what happens between the signing date and the closing date in an Investment Agreement.