Condition precedent (CP) is an event or deliverable that must occur before parties become obligated to close a transaction.

How it works

Stock purchase agreements list CPs: board and stockholder approvals, amended charter filed, legal opinions, no material adverse change, key employee agreements signed, third-party consents, and regulatory clearances if applicable. Each party certifies satisfaction at closing; unsatisfied CPs allow termination unless waived. Venture rounds often have lighter CP sets than large M&A, but IP assignment, 409A compliance, and cap table accuracy recur. Long-stop dates cap how long conditions remain open. Waivers require consent—sometimes unanimous among investors. Materiality thresholds define what breaches count.

Why it matters

• Founders: Build a CP workback schedule from target close date. Missing secretary’s certificates or stale 409A blocks wires.
• Investors: CPs limit closing into undisclosed litigation or broken cap tables. MAE clauses protect against intervening disasters.
• Counsel: CP checklists drive closing binders; parallel workstreams prevent sequential delays.

Common mistake

Treating investor diligence as finished while CPs remain open. Diligence comfort is not the same as legal satisfaction of closing conditions.

Related ideas

Conditions precedent (plural usage), closing, material adverse change, bring-down certificate, and waiver letter are standard deal-closing terms.