In my earlier pieces, I covered the fundamentals of Share Subscription Agreements (SSA) and Shareholders’ Agreements (SHA), including how they differ and work together in an investment transaction. Building on that foundation, this note focuses on an operational but critical phase – what happens after the SSA is signed but before and after the transaction is completed.
This interim layer is governed by Conditions Precedent (CP) and Conditions Subsequent (CS), which together bring structure, discipline, and risk management to the closing process.
What are Conditions Precedent?
Conditions Precedent are action items that must be completed and conditions that must be fulfilled before funds are remitted.
In practice, they fall into two buckets:
1. Regulatory and compliance (non-negotiable)
These are foundational to enable the transaction itself. For example:
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Board and shareholder approvals for the issuance of shares
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Valuation report
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Issuance of PAS-4 (private placement offer)
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Other statutory filings & compliances linked to private placement
This layer exists in every transaction, irrespective of due diligence findings.
2. Due diligence findings (transaction-specific)
Due diligence often uncovers gaps — some minor, some critical:
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Obtaining ISIN for demat issuance,
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Finalizing founder employment agreements
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Regularising past share issuances
If these issues are curable, they become CPs. If not, the transaction may not proceed.
There is usually a CP Longstop Date — if CPs aren’t satisfied by this date, either party may terminate the SSA.
At this stage, two things matter:
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Capability → Can the issue be resolved within time?
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Willingness → Is the founder aligned with what needs to be done?
If it’s a capability issue (e.g., legacy clean-up taking time), → timelines can be extended by mutual agreement.
If it’s a willingness issue (e.g., reluctance to sign founder employment terms), → the conversation typically ends there.
The Investor’s right to waive CPs
CPs are not always binary. The Investor typically has the contractual right to waive any CP in writing and proceed to Closing regardless. In practice, where a CP is actively being resolved, an investor who is confident in the founder may choose to waive it rather than delay Closing. This is a reminder that the CP framework is ultimately a risk-management tool, not a rigid gate — and that trust between the parties plays a role even at this stage.
(Closing is the moment the transaction is formally completed — the investor transfers the subscription amount, and the company issues shares against the subscription amount; everything before this moment is governed by CPs and everything after is governed by CSs.)
Completion mechanics
Once CPs are completed, the Company issues a CP Fulfilment Certificate. The Investor reviews it and confirms satisfaction, following which the transaction moves to Closing and funds are remitted.
What are Conditions Subsequent?
Conditions Subsequent are action items that must be completed and conditions that a party must fulfil after closing has occurred
They also fall into two buckets:
1. Regulatory and compliance (must be completed alongside closing)
These include:
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Allotment of shares (PAS-3)
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Finalisation and filing of Articles of Association
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Other closing-linked statutory filings
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Updating the register of members
These are not optional or deferrable in substance. Until allotment is completed, the company cannot use the funds.
If Closing related CS matters are not done, the “Closing” does not occur.
In this case the Company is contractually obligated to refund the subscription amount — typically within 2 business days of that deadline. This clause protects the investor from a situation where money has moved but allotment has not happened.
2. Due Diligence Findings
While these items are important, they are either not critical to immediate closing or require substantial time to complete, hence deferred as per agreed timelines.
Typical examples are:
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Renewing or formalising vendor, employee, or third-party agreements that were flagged during due diligence.
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Hiring key personnel (e.g., CXO level)
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Obtaining appropriate insurance coverage for premises/assets/directors.
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Confirmation from the relevant authorities regarding the transfer of trademarks and intellectual party from the founder to the company
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Reconstitution of composition of the board of directors.
Timelines are commercially agreed based on the circumstances of each case — typically ranging from 30 to 90 days depending on the nature of the item.
However, if these CS items are not completed within the given timeframe, it is typically a breach of contract and remedies are usually damages or specific performance, if shares are already allotted, unwinding the transaction is not straightforward.
Auxano perspective
We work alongside the founders to prioritise and close items in a time-bound manner; wherever required, we extend support including connecting with the right resources in the eco-system.
At Auxano, we believe the best investments not only need to start well but also need to close well. CP and CS is where that discipline shows.
Author
Mansi Handa
