Conditions Precedent

Also known as: CPs, Closing Conditions, Conditions to Closing, Closing, Kapanış Şartları

In short

Approvals, consents and other conditions that must be satisfied between signing and completion (closing) of a transaction, failing which the parties are not obliged to complete.

Conditions precedent are conditions that must be satisfied after signing and before completion of the transaction (closing). At closing, the investment or purchase price is paid and shares change hands. If the conditions are not met, the parties are not obliged to close.

Typical Conditions Precedent

Competition Board approval: If the transaction results in a change of control and the turnover thresholds are met, closing cannot take place without approval; see Acquisition and Change of Control,
Sector-specific approvals: Approval of the relevant authority in regulated sectors such as banking, insurance, energy, media and capital markets,
Corporate resolutions: General assembly and board resolutions, amendment of the articles, non-exercise of pre-emptive rights,
Third-party consents: Consent of counterparties due to change of control clauses in material contracts,
Due diligence findings: Remedying issues identified in due diligence,
Key employees: Founders and key employees signing new agreements,
Material adverse change (MAC): No material adverse change in the company between signing and closing.

Between Signing and Closing

During this period, the seller or company undertakes to run the business in the ordinary course and not to carry out material transactions without the buyer’s consent. However, if the buyer actually intervenes in the company’s management before Competition Board approval, gun jumping risk arises. Matters requiring consent should therefore be limited to protecting the company’s value.

Long-stop Date and Closing

The agreement sets a long-stop date for the conditions to be satisfied. If they are not met by then, the parties may terminate. On the closing date, the price is paid, the share transfer or capital increase steps are taken, board changes are made and closing deliverables are handed over.

Frequently Asked Questions

Why are signing and closing separated?

If the transaction requires Competition Board approval, sector-specific approvals or third-party consents, it cannot be completed before they are obtained. The parties then sign the agreement to bind themselves and close once the conditions are met. In small funding rounds that need no approval, signing and closing can take place on the same day.

What happens if the conditions are not met by the long-stop date?

Agreements usually give the parties a right to terminate. If a condition is not met due to one party's fault, that party may be required to pay damages or a break fee.

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