Series A Legal Readiness: The Checklist Institutional Investors Expect

Due Diligence Happens Before the Term Sheet, Not After

There is a common misconception that legal due diligence is something that happens after a term sheet is signed. In practice, institutional VCs — and increasingly, sophisticated seed funds — evaluate legal readiness before they engage in substantive term sheet negotiations. If your corporate house is not in order, the deal does not slow down — it often never starts.

This checklist covers the governance, compliance, employment, and intellectual property work that Canadian startups need to have completed before a lead investor begins formal diligence.

Corporate Governance

Articles and By-Laws

• Current articles of incorporation, including all amendments, filed and certified
• Authorized share capital includes common shares and at least one class of blank-cheque preferred shares
• Share transfer restrictions in place (required for private companies under the OBCA)
• By-laws adopted by proper resolution and up to date

Shareholders Agreement

• Executed SHA covering all current shareholders
• Vesting schedules documented and being administered
• Transfer restrictions, ROFR, drag-along, and tag-along provisions in place
• No outstanding disputes, deadlocks, or unresolved shareholder issues

Board and Officer Records

• All director and officer appointments documented by proper resolution
• Directors' fiduciary duties under CBCA s.122 acknowledged
• Board meeting minutes current and complete
• Directors' and officers' insurance (D&O) in place or quotes obtained

Cap Table

• Fully diluted cap table showing all issued shares, options, warrants, SAFEs, and convertible notes
• All share issuances supported by proper board resolutions and share certificates or DRS statements
• SAFE and convertible note conversion terms clearly documented with no ambiguity on valuation cap, discount, or conversion triggers
• No unauthorized shares outstanding

Employment and People

Employment Agreements

• Written employment agreements with every employee — not offer letters, not verbal agreements
• Termination clauses compliant with Waksdale v. Swegon (2020 ONCA 391) — if your agreements pre-date June 2020, they almost certainly need to be rewritten
• Probationary period clauses compliant with ESA s.54
• Restrictive covenants compliant with the Shafron v. KRG Insurance reasonableness framework
• Non-compete clauses compliant with ESA s.67.2 (Ontario) — removed for non-executive employees

Contractor Agreements

• Written agreements with all independent contractors
• Proper classification under the Sagaz test — no dependent contractors disguised as independents
• IP assignment clauses in every contractor agreement (the Copyright Act default gives the contractor ownership)

Stock Option Plan

• Board-approved ESOP with a defined option pool (typically 10-15% of fully diluted shares)
• Individual option agreements executed with all optionees
• Vesting schedules documented and being tracked
• Tax treatment understood — ITA s.7 for CCPC vs. non-CCPC employees, and the $200,000 annual vesting limit for non-CCPC options

Intellectual Property

IP Chain of Title

• IP assignment agreements executed with every person who has contributed to the product — founders, employees, contractors, advisors, and anyone else
• Moral rights waivers included (moral rights cannot be assigned under Canadian law, only waived)
• No gaps in the chain of title — every piece of code, design, content, and branding is assignable to the company
• Pre-incorporation IP (work done before the company existed) properly assigned by the founders

Third-Party IP

• Open source software audit completed — all open source dependencies identified, license obligations understood, no copyleft contamination of proprietary code
• Third-party software licenses current and compliant
• No pending or threatened IP infringement claims

Registrations

• Trademarks filed or registered for the company name, product name, and logo (at minimum, common law rights established through use)
• Domain names registered and owned by the company (not by a founder personally)
• Patent applications filed if applicable

Compliance and Regulatory

Privacy

• PIPEDA-compliant privacy policy published
• Breach reporting protocol documented (PIPEDA s.10.1)
• Quebec Law 25 compliance if applicable (privacy impact assessment, designated privacy officer, consent granularity)
• Data processing agreements with all sub-processors

Securities

• All prior share and security issuances made under valid NI 45-106 exemptions
• Reports of exempt distribution filed in all required jurisdictions
• No outstanding regulatory issues

Commercial

• Terms of service and acceptable use policies current
• Material customer contracts documented and accessible
• No pending or threatened litigation

The 30-Day Pre-Diligence Sprint

If you are three to six months from a Series A conversation, audit every item on this checklist now. The items that are missing or deficient need to be fixed before investor conversations begin — not during diligence, when every delay raises questions about your operational maturity.

Investors expect clean corporate records, enforceable agreements, and a complete IP chain of title. Anything less signals risk — and risk kills deal velocity. The companies that raise efficiently are the ones that did the legal work before they needed to.