I am an entrepreneurial lawyer in the Seattle area who helps clients build and plan for the future. I graduated from the University of Chicago School of Law and worked at a large global law firm. Now I help real people and companies get where they want to go. Contact us to discuss how we can work together! Some of the areas of law I work in: Small Business, Trusts and Estates and Wills, Tax Law (for individuals, corporations and non-profit organizations), Land Use, Environmental Law, Nonprofits There can be a lot of « what ifs » when it comes to investing, where an investor agreement comes into play. How many shares does each investor own? How are dividends distributed? Who runs the business? These are just some of the questions that need to be answered. If there is a disagreement between investors later, you can use an investor agreement to resolve them. This document can also allow for a fairer distribution of power, so if you are a minority shareholder, you can use an investor agreement to protect your best interests. Other names for this document: Shareholders` Agreement, Investment Agreement If your investor only receives common shares, it means that you are on an equal footing. So when it`s time to make decisions, you`re likely to get one vote at a time for every share of the company you own. When it`s time to make profits (or distribute losses), you`ll get a proportionate share in each case relative to the number of shares of the company you own. External investors want restrictive covenants in the agreement as part of their investment because they entrust you with taking their investment and running the business properly without actually being there to check you on a daily basis. If you`re an avid Shark Tank viewer, you`ll find that there are two types of shark investors: Mr. Wonderful and just about everyone else.
All other sharks usually make a traditional investment in stocks; For example, they invest $100,000 at a company valuation of $1,000,000 and take more than 10% of the business. This is called a traditional equity investment. It is important to clearly state in the contract what you, as an investor, provide in what form and when the investment will be activated. It should be clarified whether investments are transferred in the form of cash, cheques, assets or transfers. It is important to ensure that all details are included in the contract, no matter how trivial they may seem, so that there is no confusion or dispute that arises later. Disclaimer: The purpose of this article is to promote awareness of legal and other issues that may affect business owners and is not intended to provide legal or professional advice. Business owners should contact a suitably qualified professional or licensed lawyer in their jurisdiction directly for appropriate legal or professional advice. When you create a contract, you need to ask yourself about the essential parts of the contract. Usually, one party gives money or something of financial value in exchange for goods or services on the other side. Contracts usually have a time element that limits the period of validity of the agreement. They also include regulatory aspects, such as the applicable law clause, which links the terms of the contract to applicable laws and laws.
If your contract involves the exchange of something of financial value that buys another thing of monetary value at a fixed time in the future, you usually need to incorporate the idea of « investment » into your contract. Investment contracts are a category that covers a variety of different agreements, but all include a component, return on investment, or return on investment. When you talk about why a party might pay their money or give you or another company financial instruments, you are talking about their economic interest, and that is the return on investment. This is the amount of money they could earn extra by placing their initial amount as an investment. Many different formulas, structures and guidelines apply. The basic principles are the same: over time, the amount of the investment will increase, and the investor will be able to withdraw a larger amount in the future. For a contract to be valid, it usually requires an element of time. The « Term » is the period for which the Contract is valid, in particular at the time of its entry into force and the termination or termination of the effect. As a rule, contracts are not signed forever and always start on a certain date. If your deal is money for money, or in other words, most of the benefit for a party is not goods and services, but money returned at some point, your contract can be classified as an investor agreement. In an investment contract, the basics describe the terms of the investment as well as how and when the investor should expect a return on investment. The basic information that should be included in an investment contract is as follows: If you later decide to hire an additional investor or sell new shares of the company to employees or your family and friends at a discounted price, that investor`s total stake may fall below their 10% stake.
This risk of a reduction in the share of total ownership triggers an important term called the anti-dilution protection clause. Almost all external investors will require that an « anti-dilution protection » clause be included in one form or another. As a small business owner, the goal is to understand how to negotiate the clause to better serve you. For example, if an investor invested $3 million, had a « triple bottom » clause, and the company was sold for $10 million, they would get $9 million first, leaving only $1 million for you and other regular investors. If you enter into a business relationship that includes shares, or if you are already in such a business relationship, you can use an investor agreement to protect your fundamental interests. If. Read more Your contract should specify when an investor can expect a return on investment. If they don`t receive a return, the investor can demand that you return the investment. Investment contracts are agreements in which a party invests money in the hope of receiving a return on investment (ROI).
These contracts are used in various industries, including real estate. Read 3 min The investment contract should include all kinds of reports that investors can expect in terms of corporate finances. It is also necessary to indicate in detail the rights of the investor to verify the books of companies. That is, if you were to offer employees or family limited extra shares or a small number of shares to a leading investor with a significant discount just to get them on board, you would have to offer the same discounted prices to the initial investor. They would probably still buy at that discounted price because they would acquire additional shares below market value, which would effectively dilute your property compared to theirs. Taking an outside investor may seem like the kind of five-minute trade you see in the Shark Tank, but the truth is that there are dozens of important legal clauses that you need to understand and negotiate before you can sign an agreement. Assuming you`re considering an offer where the investor makes an investment in traditional stocks (remember, this is how most sharks do it), the next important clause is to check whether the shares the investor takes are preferred or common shares. For example, a common request is that you agree not to violate any regulations or laws in the management of your business. However, sometimes there are so many regulations or laws that you may not know you are violating something, so you can compromise and have that agreement amended to accept rather than that you are not knowingly violating regulations or laws.
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