11 Sep

A company can be doing well commercially and still not be ready for an investment transaction.

This is something that becomes particularly apparent when a business that has spent years focused on building its product, acquiring customers and generating revenue suddenly finds itself preparing for a capital raise. The focus naturally shifts to the investor, the valuation, the investment terms and how quickly the deal can close. Then the due diligence begins, and questions start coming up about the company’s corporate records.

A director was appointed but the relevant corporate records were never updated. A previous share transfer was not properly documented. The company’s statutory records do not completely correspond with its current ownership structure. There are outstanding filings that have accumulated over time. A founder has arrangements with the company that were never formally documented.

Individually, these issues may appear administrative. In the context of a transaction, they can become much more significant.

An investor needs to know exactly what they are investing in. That means being able to establish who owns the company, how its shareholding has changed, who has authority to make decisions and whether the company’s corporate records accurately reflect its present position. Where the records do not tell a consistent story, the investor’s legal advisers will naturally ask questions.

This is where corporate housekeeping becomes more than an annual compliance exercise.

Good corporate housekeeping creates a reliable record of the company’s legal history. When shares are issued or transferred, directors change, ownership changes or significant corporate decisions are made, the appropriate documentation and filings should follow. The objective is not simply to satisfy the Corporate Affairs Commission. It is to ensure that there is a clear legal record supporting the way the company operates.

This becomes particularly important during fundraising because due diligence is designed to uncover risk before an investor commits capital. An investor may be comfortable with the commercial risks of the business, but unresolved corporate issues can create uncertainty around ownership, control or the company’s ability to complete the transaction.

Sometimes, the solution is straightforward. A company may simply need to bring its filings up to date or properly document an earlier corporate action. In other situations, the review may reveal a deeper structural issue that needs to be resolved before the investment can proceed.

And timing matters.

Discovering these issues weeks before completion of a transaction can put unnecessary pressure on the company. Management is already negotiating investment documents and responding to due diligence requests, while lawyers are simultaneously trying to reconstruct the company’s corporate history and regularise outstanding matters.

That is very different from identifying the same issues months before a fundraising process begins.

Corporate housekeeping should therefore not be viewed as something a company does because it expects the CAC to ask questions. It is part of maintaining a business that is ready for its next stage.

A company preparing for investment should be able to tell a clear and consistent story through its legal records: who owns the business, who controls it, how that ownership came about and whether the company’s formal records support the position today.

Because when an investor comes to the table, corporate compliance is no longer just about being up to date.

It becomes part of proving that the business is ready for investment.