The Three-Pass Review That Catches What Spellcheck Misses
This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Something happens roughly two weeks before a closing, usually at that moment when a transaction’s document set has ballooned past twenty files and the working group has started trading redlines on top of redlines. Somebody runs spellcheck, somebody else skims the signature pages, and the deal team collectively decides the documents are “clean.” Then the closing falls apart, not because of a typo, but because a schedule references a share class that was renamed three drafts ago, or because a condition precedent lists a deliverable that nobody in the working group can actually produce. The problem isn’t proofreading. The problem is that most review processes catch only what you might call pass zero of three: surface errors that any word processor can flag. The real errors, the ones that create post-closing disputes, board liability, and regulatory headaches, live deeper.
What follows is a three-pass quality review framework that founders, in-house counsel, and outside advisors can run on virtually any transaction document set. It’s not a substitute for experienced legal judgment, but it does provide a structured way to move through a document set with purpose rather than just reading and hoping something jumps out.
Pass One: Completeness
The first pass asks a single question: does this document set actually cover every workstream, every deliverable, every owner, and every deadline that the transaction requires? This sounds obvious, but it’s the pass most teams skip entirely because they assume the drafting process itself ensures completeness. It doesn’t.
Consider a hypothetical Series A financing. The term sheet contemplates a board observer right for the lead investor, an investor rights agreement with information rights, and a management rights letter. A typical drafting process will produce the stock purchase agreement, the investors’ rights agreement, the voting agreement, and the certificate of incorporation amendments. But the management rights letter, which the lead investor needs for ERISA purposes, sometimes never makes it into the closing checklist because it wasn’t part of the “core” document set. The observer right gets mentioned in the voting agreement recitals but never formalized in a board consent or charter provision.
A completeness pass works by building (or auditing) a closing checklist that maps every obligation in the term sheet or letter of intent to a specific document, a specific section, a named owner responsible for drafting or producing it, and a deadline. Every approval, whether board, stockholder, or third-party, needs a line item. Every governmental filing needs a line item. Every payoff letter, lien release, or estoppel certificate needs a line item. If you’re working from a template or AI-generated first draft, this is where you check whether the template included provisions that don’t apply (and should be deleted) or omitted provisions that do apply (and must be added).
The deliverable from pass one is not a clean document. It’s a complete inventory. You should emerge knowing that every transaction requirement has a home in the document set and an owner in the working group.
Pass Two: Consistency
The second pass assumes the document set is complete and asks: do all of these documents agree with each other? This is where the majority of real transaction errors live, and it’s the pass that AI drafting tools make simultaneously easier and more dangerous.
Consistency review covers several dimensions. First, entity names and party identifiers. If the company is “Acme Technologies, Inc.” in the stock purchase agreement, it needs to be “Acme Technologies, Inc.” in the certificate of incorporation, in the investors’ rights agreement, in the board consent, and on every signature block. Not “Acme Technologies Inc.” (missing comma), not “Acme Tech, Inc.” (abbreviation), and certainly not “the Company” in a document that never defines that term. These inconsistencies look trivial until a transfer agent rejects a stock issuance because the entity name on the board consent doesn’t match the name on the charter.
Second, dates. A closing date in the stock purchase agreement must match the “as of” date in the board consent, the effective date of the certificate amendment, and the date on the officers’ certificates. In a hypothetical scenario where a closing slides from March 15 to March 22, every date reference in every document needs to update, including dates buried in conditions precedent (“the Company shall have delivered, no later than five business days prior to the Closing Date”) and in bring-down references.
Third, defined terms. This is the single most common source of post-closing confusion. A well-drafted document set uses defined terms consistently: “Shares” means the same thing in every document, “Material Adverse Effect” has the same definition (or explicitly different definitions, with the difference acknowledged) across the purchase agreement and the disclosure schedules. The consistency pass should include a defined-terms reconciliation, which means extracting every defined term from every document and confirming that cross-references resolve correctly.
Fourth, share counts and capitalization. The certificate of incorporation authorizes a specific number of shares. The stock purchase agreement sells a specific number. The cap table reflects both plus all outstanding options, warrants, and convertible instruments. These numbers must reconcile. In a hypothetical scenario involving a stock split, pre-split share counts in historical board consents should not appear unreformed in a current capitalization schedule.
The Uniform Commercial Code Article 8 governs the transfer of investment securities and provides the legal framework that makes precise share-count reconciliation more than a best practice; it’s a requirement for ensuring that transferred securities are properly identified and that the issuer’s records match the instruments outstanding.
Pass Three: Operational Proof
The third pass is the one almost nobody does, and it’s the one that prevents the most painful closing failures. Operational proof means walking the closing script, step by step, with actual people and actual systems, and confirming that every action described in the documents can physically happen.
This sounds abstract, so consider concrete examples. A stock purchase agreement says the company will deliver “a certificate of good standing from the Secretary of State of Delaware, dated no more than five business days prior to the Closing Date.” Operational proof asks: has someone actually ordered this certificate? From the correct state office? With sufficient processing time? Delaware’s Division of Corporations can deliver same-day certificates for expedited fees, but if nobody placed the order, the condition precedent fails on closing day.
A board consent authorizes the CEO to execute all transaction documents on behalf of the company. Operational proof confirms: is the CEO actually available on the closing date? Does the CEO have access to the e-signature platform? If the CEO is traveling internationally, is there a time-zone plan for sequential signature pages?
A funds-flow memo directs the purchaser’s wire to the company’s operating account. Operational proof confirms: does the wire instruction include the correct ABA routing number, account number, and reference line? Has someone at the company’s bank confirmed the account can receive a wire of that size without triggering a hold? In a hypothetical scenario involving a foreign purchaser, has anyone confirmed the intermediary bank routing?
The operational proof pass also covers the “day after closing” workstream. Stock ledger updates, corporate minute book entries, post-closing filings (Form D, blue sky filings, UCC amendments), and investor onboarding to cap table management software. These items aren’t technically closing deliverables, but failing to plan for them creates the kind of administrative debt that compounds over subsequent financing rounds.
Why Three Passes Instead of One Thorough Read
The reason for separating these into distinct passes rather than trying to catch everything in a single read-through is cognitive. Completeness review requires a different mental mode than consistency review, which in turn requires a different mode than operational simulation. When a reviewer tries to do all three simultaneously, they default to whichever mode feels most natural (usually consistency, because spotting mismatched names feels productive) and neglect the others.
This framework also maps well onto different members of a deal team. A junior associate or paralegal can run pass two (consistency) with high reliability because it’s largely mechanical: extract, compare, flag. Pass one (completeness) requires enough deal experience to know what’s missing, so it typically falls to a senior associate or partner. Pass three (operational proof) benefits from someone who has actually run a closing before and knows where the physical-world failure points hide.
For founders running their first or second transaction, even a simplified version of this framework will surface issues that a general “review the documents” instruction would miss. Print the closing checklist. Walk each document against the checklist for completeness. Run a find-and-replace audit for entity names and dates. Then sit down with your counsel and walk through the closing day, hour by hour, asking “who does what, and do they have what they need to do it?”
The documents will be better for it. More importantly, the closing will actually close.
If you are preparing for a financing, acquisition, or secondary transaction and want a structured review of your transaction documents, feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
