Checklist for funders: contracts, clients and change of control clauses
When a company enters into a transaction with an investor, not only its internal processes but also all external contracts — with clients, partners, suppliers, and banks — come under close scrutiny. After all, these contracts and relationships are the backbone of the company’s revenue and operational stability.
We have written separately about formalizing intellectual property rights here. In this post, we would like to draw attention to details that are often overlooked but can slow down or even derail a transaction.
Contracts: Not just in place, but working
It is important to ensure that all commercial agreements — with clients, partners, and suppliers — are signed by all parties, remain in force, are actually being performed, and do not contain hidden risks (e.g., automatic renewal on unfavorable terms or unilateral termination rights). A contract that is "more or less agreed" — discussed over email, exchanged as a Word file, but never signed — does not inspire confidence in the investor. It is better to review all key counterparties in advance and update, sign, and bring documents up to date.
During due diligence, investors often request confirmation of the authority of individuals who signed contracts, especially with major clients or in key business areas. If an agreement was signed by a "sales manager" without a power of attorney or any mention in corporate resolutions, this may raise concerns. It is best to review key contracts in advance and ensure that the signatories had proper authority and, ideally, attach copies of resolutions or powers of attorney.
Related companies and informal arrangements
In IT companies, it is common for part of the work or rights to be "distributed" among several legal entities. For example, IP rights may belong to one company, marketing may be handled by another, and payments received by a third. Sometimes this is done for tax reasons, sometimes historically because it was easier that way.
If contracts between these companies are not properly formalized—or exist only formally without a clear understanding of who pays whom and for what—this may raise questions from investors. The same applies to contracts with companies where founders are shareholders or directors—such relationships are considered "affiliated" and require particular transparency.
At the deal stage, it is important that all key arrangements between related entities are documented in writing: who does what, who pays whom, and what will happen to these agreements if the company changes ownership. If everything is based on "gentlemen’s agreements," it is worth formalizing this in advance.
Change of control clause: a small sentence with big consequences
Some agreements contain a so-called change of control clause — a condition requiring the other party’s consent in the event of a change of ownership of the company. Sometimes consent is needed before the change, sometimes immediately after. Such clauses are more common than one might expect. They cannot be ignored — a transaction may be delayed until consent is obtained.
The bank is part of the process too
Don’t forget that a change of shareholders and directors must be reported to the bank. In some countries this is a formality; in others, it is a mandatory requirement, and failure to comply can result in accounts being frozen. To avoid payment disruptions at the worst possible moment, it is worth clarifying your bank’s requirements and preparing the necessary documents in advance.
Contracts, especially with major clients and partners, are the foundation of your current revenue. If your contractual records are in order, this facilitates a smooth due diligence process and shows the investor that the company is well-managed. These matters are often perceived as "technical," but in practice they can significantly impact the speed and outcome of negotiations.
Authors: Viktoria Markova, Irina Kuheika
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