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Legal glossary

No legal impediment to issuance: Overview, definition, and example

No legal impediment to issuance refers to a contractual assurance that there are no legal restrictions, regulatory barriers, or pending disputes preventing a party from issuing securities, shares, bonds, or other financial instruments. This clause is commonly found in financing agreements, stock purchase agreements, and bond issuances to confirm that the issuing party has the legal authority to proceed.

For example, if a company plans to issue new shares, it must ensure that there are no court orders, regulatory restrictions, or shareholder disputes that could prevent the issuance.

This provision is important because it protects investors, lenders, and counterparties from legal risks associated with improperly issued securities or financial instruments. It ensures that all necessary approvals have been obtained and that the issuance complies with applicable laws and regulations.

For companies, including this clause in agreements reassures buyers or lenders that there are no outstanding legal challenges that could invalidate the transaction. It also helps prevent regulatory violations that could lead to penalties or lawsuits.

A publicly traded company plans to issue $50 million in corporate bonds. Before proceeding, the company must confirm that no legal challenges or regulatory violations exist that could delay or prevent the issuance. Investors rely on this assurance before purchasing the bonds.

In another case, a startup receives venture capital funding in exchange for newly issued preferred shares. The investor agreement includes a no legal impediment to issuance clause, ensuring that no prior agreements, shareholder disputes, or legal actions would block the issuance of these shares.

Here’s how a no legal impediment to issuance clause might appear in a contract:

“The Issuer represents and warrants that there are no legal, regulatory, or contractual restrictions that would prevent or impair the issuance of the securities contemplated under this Agreement. The Issuer further confirms that all necessary approvals and authorizations have been obtained to effectuate the issuance.”

Conclusion

A no legal impediment to issuance clause ensures that securities, shares, or financial instruments can be issued without legal barriers. This provision protects investors and counterparties from unforeseen legal risks and helps maintain compliance with regulatory requirements. By including this clause, issuers provide confidence that their financial transactions are legally sound and enforceable.

This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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