Top 10 Legal and Compliance Mistakes: Raising and Deploying Capital

1)   Delaying Legal and Compliance Involvement - Structuring Failings

Early stage legal and compliance input is critical for structuring deals properly. Without this, capital raises may face legal issues, and structuring errors can cause significant delays or lead to costly corrections.

2)   Misunderstanding Marketing Rules - Premarketing Rules

Marketing for capital raises often requires strict adherence to premarketing regulations, especially in specific jurisdictions. Missteps here can lead to penalties or prohibition from soliciting certain investors. It’s essential to understand when and how premarketing can legally occur.

 3)  Ignoring Jurisdictional Risks

Jurisdictional compliance, especially with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, varies significantly. Failing to adapt policies and legal practices to local requirements can result in fines or sanctions.

4)   Neglecting to Conduct a Tailored Due Diligence Review

Proper due diligence protects against hidden risks but requires customisation to the transaction type and industry. Overlooking unique aspects of a deal can lead to undisclosed risks that may harm investment value or violate regulatory standards.

5)   Failing to Develop a Documented Strategy

A documented strategy serves as a roadmap for the capital-raising process, helping to clarify objectives, ensure compliance, and align team efforts. Lacking this document may create inconsistencies and heighten regulatory and legal risks.

6)   Overlooking AML/ KYC Requirements in Outsourced Processes

AML and KYC processes are often outsourced to third-party providers, but poorly managed or inadequately vetted providers can create compliance risks. Ensuring outsourced AML/KYC operations meet regulatory standards is crucial for avoiding legal consequences.

7)   Inadequate Management of Side letter and LPA Specifics

Side letters and Limited Partnership Agreements (LPAs) have specific legal requirements and terms, which must be carefully adhered to. Inconsistent or poorly managed agreements can lead to disputes, misaligned expectations, or regulatory scrutiny.

8)   Underestimating Technology Risks in Compliance Tools

Using the wrong technology tools, or failing to secure those that are used, can expose confidential data or disrupt operations. Regularly assess and update technology solutions for compliance, security, and effectiveness.

9)   Failing to Engaging Local Counsel

Local counsel provides insights into jurisdiction-specific regulations and ensures that deployment of capital adheres to local laws. Failing to engage local legal experts can increase legal exposure and risk of non-compliance.

10)  Choosing Inappropriate Financial Instruments for Transactions

Selecting the wrong financial instrument (e.g., debt vs. equity) for a transaction can have unintended tax, legal, and regulatory impacts. Careful selection of financial instruments helps optimise transactions and avoid unnecessary compliance issues.

About Khepri

With over a decade of experience and a strong focus on private markets, private equity, venture capital, and real estate, Khepri provides tailored compliance solutions, appointed representative, fund administration, host fund management, and corporate services to help your business thrive.

Our team works closely with each client to create bespoke plans, offering the support and expertise you need to grow your business.

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