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 have? How are dividends distributed? Who is running the business? These are just a few of the questions that need to be answered. If there are disagreements between investors along the way, you can use an investor agreement to resolve them. This document can also offer a more equitable distribution of power, so that if you are a minority shareholder, you can use an investor agreement to protect your best interests. Other names of this document: shareholders` pact, investment agreement Investment documentation generally includes (i) the statutes and (ii) an agreement (often described differently by a combination of the terms “investment,” “subscription” and/or “shareholders` pact”). Accepting investors into your small business can be a pleasant experience or it can become a terrible legal nightmare. It is always advisable to let a lawyer prepare a full investment agreement to ensure that all parties are aware of the terms of the investment and its effects on the property and financial expectations. In certain circumstances, you may be prevented from accepting investments by individuals who are not considered accredited investors who respect the necessary personal financial capacity. Before entering into an investment agreement, your lawyer must thoroughly check all applicable legal requirements. 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.

Entrepreneurs should consult directly with a qualified professional or a licensed lawyer in their jurisdiction for appropriate legal or professional advice. When you hear about a company that sells for about $10 million, most people think that the founders are now multimillionaires. Whether this is true or not does not depend sufficiently on how the liquidation clause was negotiated with outside investors. The contract should determine whether the investor has rights within the company, such as control or management rights. For example, some investors may obtain voting rights in a company that allows them to have a say in the management of the business. Investors can vote for executives or directors. Another concern you should pay attention to with alliances is that they don`t limit you excessively to managing your business every day. For example, going to the investor before signing a new contract or hire and impairing your ability to use new opportunities as a company will be a big problem.

On the other hand, it is probably reasonable to have to obtain their authorization before giving you an increase or distribution of large sums of money. Alliances, a legal term that only means promises, are things you promise to do (known as Affirmatives Covenants) or promise not to do (known as negative alliances) as company managers. At least your investor will want to see that his or her ownership shares (in shares) are properly documented, as was issued on behalf of the investor. This is (in itself) some red tape, even if it is not scandalous for an investor to subscribe shares solely on the basis of the widely held statutes of an English limited company (i.e. the Corporate Law – “model status”). Most investments are available in cheques, cash or transfers. However, some investments are provided as tangible assets. The treaty should show whether that is the case. In the case of tangible investments, you need to figure out how to continue the business if the investor requests that these assets be returned.