Can You Change Deal Terms After Investors Have Signed?
On this page
- What counts as changing the terms?
- What if you want to change terms before closing?
- Can an investor cancel after the sponsor changes terms?
- How does it work after closing?
- What about side deals and special terms for one investor?
- How should you communicate the change?
- Our take
- Trade-offs and who this is not for
- How DoorRaise fits in
- FAQ
Not on your own. Once investors have signed, a sponsor cannot quietly rewrite the deal. Before closing, a material change must be disclosed in writing, and investors who signed on the old terms generally need to agree to the new ones or be given a fair choice. After closing, terms change only through the amendment process in the operating agreement, and a change that makes investors worse off normally needs their consent.
What counts as changing the terms?
Anything investors relied on when they signed: the purchase price or budget, the loan, the preferred return, the split of profits, the fees, the hold period, the minimum raise or the closing conditions. A typo fix or a new bank wire detail is not a change in the deal, but it still deserves a clear note to investors.
What if you want to change terms before closing?
Treat it as a material change to the offering. Disclose it in writing to every investor, with each old term next to the new one and the reason, and update the offering documents. See updating the PPM for a material change. Investors who already signed should then re-confirm. If an investor does not agree, do not count that subscription at the new terms. Rule 10b-5 prohibits misleading statements and omissions throughout the offering (17 CFR 240.10b-5).
Can an investor cancel after the sponsor changes terms?
A signed subscription is generally binding, and on DoorRaise investors cannot cancel after signing except where the law requires a right. A material change to the offering is one of those cases, so plan to give investors an informed choice rather than a take-it-or-leave-it notice. In a deal that fails to close, escrow money goes back to investors.
How does it work after closing?
The operating agreement governs. It should say which changes the manager can make alone (for example fixing an error or adding a new investor under the same terms) and which need the vote or consent of members, usually a majority in interest, with a higher bar for anything that changes economics. See major decisions that need investor consent and the operating agreement. A change that hurts one class of investors more than another often needs that class's consent.
What about side deals and special terms for one investor?
Do not make them quietly. A side letter that gives one investor a better fee or a different right can conflict with what others were told and with the operating agreement's favored-nation language. See side letters in a syndication. Disclose them, and offer the same terms to similarly situated investors where the documents say so.
How should you communicate the change?
One written notice to everyone, a redline comparing old and new, a plain reason, a date by which to respond and what happens if they do not. Keep a record of who agreed and when. Then follow up with anyone silent before you close.
Our take
The easy way to change a deal is to ask. Investors who see the old and new terms together, and a good reason, usually say yes. Sponsors get into trouble when they change terms first and explain later.
Trade-offs and who this is not for
- Asking again costs time. It is still cheaper than a dispute about a term nobody agreed to.
- Not for sponsors who want to change economics after closing without a vote. The operating agreement does not allow it unless it says so.
- Common mistake: treating a signed subscription as a draft. It is not.
- Not a substitute for counsel, especially for amendments after closing.
Related guides: Major decisions and investor votes and Changing terms mid raise.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
Offering documents and signatures sit in one place, so a changed term can go to every investor with a fresh e-signature and a record of who agreed. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Can I change the preferred return after investors signed?
Not without disclosure and agreement. It is a core economic term, so treat any change as material.
Can I raise more money than the original raise amount?
Check the maximum in your documents. Raising above it, or changing the use of funds, is a change to disclose.
Do all investors have to agree to an amendment after closing?
It depends on the operating agreement. Many require a majority in interest, and unanimous or class consent for changes that hurt investors.
What if only one investor objects?
Look at the amendment clause. If their consent is required, you cannot proceed without it; if not, you still owe them accurate disclosure.
Sources
This article is general information, not legal, tax or investment advice. Talk to a securities attorney before you market an offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.