What are CP and CS in Investment Deals / Term Sheets?

CP and CS in Investment Deals

You will very often hear people talk about CP and CS Investment during the fundraising process, be it at the time of finishing Due Diligence or negotiating on the Share Subscription or ShareholdersAgreements.

  1. CP means Conditions Precedent i.e. tasks to be completed before the funding will come in or the deal documents are signed. This may include things such as approval from existing shareholders or regulatory approval on some pending non-compliance.
  1. CS means Conditions Subsequent i.e. tasks that must be completed after receiving the funds and signing of deal documents, such as informing relevant government authorities about the deal through necessary statutory filing (in India, it may be with the MCA and the RBI, etc.,)

While of course CS also means Company Secretary, who helps you with these filings.

CP’s stands for Condition Precedent and CS’s stands for Conditions subsequent. The word CP and CS Investment 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.

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.

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