Fundraising is a complex process that relies on several key legal instruments. These documents structure the relationship between the company and its investors, ensuring the legal security of the transaction by clearly defining the rights and obligations of each party. What legal tools are used during a fundraising process, and what is their purpose? Let’s take a closer look.
1.TERM SHEET
The letter of intent is a non-binding document that outlines the main terms of the agreement
between the investors and the founders, including:
- the amount of the investment;
- the pre-money and post-money valuation;
- the rights attached to the shares (preferences, dividends, liquidation rights);
- the timeline and any conditions precedent.
As a cornerstone legal tool, the term sheet serves as the basis for negotiations and facilitates the drafting of final agreements.
In any case, seeking support from a at this stage helps strongly recommended.
2. FUNDRAISING DOCUMENTATION: THE SHAREHOLDERS’ AGREEMENT
The shareholders’ agreement is a private contract between shareholders that supplements the company’s bylaws. It governs matters such as:
- corporate governance (board structure, voting rights);
- exit provisions (including tag-along and drag-along clauses);) ;
- anti-dilution provisions;
- preferential rights and protections for minority shareholders.
The shareholders’ agreement is a foundational document in any fundraising round, as it helps secure long-term relationships between shareholders.
3. AMENDED ARTICLES OF ASSOCIATION
During a fundraising, the company’s articles of association (bylaws) are typically amended to reflect:
- the capital increase;
- the specific rights attached to newly issued shares (e.g., preferred shares);
- updates to governance rules.
These amendments must be approved during an extraordinary general meeting (EGM).
4. INVESTMENT AGREEMENTS
These contracts consolidate several key elements, such as:
- investment commitments;
- representations and warranties (R&W) or warranties on assets and liabilities;
- conditions precedent (e.g., financing obtained, no material adverse change).
The investment agreement formalizes each party’s specific obligations in a binding framework.
5. FUNDRAISING-SPECIFIC FINANCIAL INSTRUMENTS
Depending on the type and stage of the fundraising, other instruments may be used:
- Warrants (BSA) and BSA Air: rights to purchase shares at a predetermined price in the future;
- Convertible bonds: debt instruments that can be converted into shares later;
- Preferred shares: shares that carry specific rights to dividends or governance.
These tools bring flexibility and appeal to investors and are frequently used in early-stage or bridge financing rounds.
Each legal tool used in a fundraising round serves a precise purpose. Mastering and structuring these tools correctly — with the assistance of a corporate and business lawyer — is essential. Choosing to be accompanied by a legal expert is a strategic decision: it prevents future disputes and ensures both the sustainability of the company and the enforceability of the parties’ commitments.
