The Quickest Way To Write a Professional Investment Agreement
Whether you’re investing in a business or seeking investors for your own company, you should know how to create an investment agreement. Creating legal documents can be challenging, but they are a crucial part of every business relationship.
To make the process easier for you, we’ve created this guide to help you write an investment contract stress-free. We also offer a solution for drawing up other documents in a few clicks so that you don’t have to waste money on a lawyer.
What Is an Investment Agreement?
An investment agreement is a legally binding contract that specifies the duties and rights of a company and its investors. An investor can be:
- The company’s existing shareholder who wants to invest more funds
- A new investor
- An individual representing a syndicate of investors
You should create an agreement if you want to:
- Form a company and want to sell shares to the investors
- Invest in a business and need a contract to protect your interests
- Avoid disputes and misunderstanding between shareholders
The investment contract outlines the terms of the investment and answers important questions, such as:
- How many shares does each investor have?
- Who manages the company?
- How are the profits distributed?
- Is the distribution of power equal?
- What is the investor entitled to?
Why Are Investors Agreements Important?
An investment agreement’s main purpose is to protect the interest of both parties.
Investors should sign the agreement to ensure their money is used the way they expect and that they can participate in the company’s business strategy. The contract should also specify how the investors will get a return on the investment.
Companies benefit from the agreement because it allows them to preserve integrity by defining what the investor is entitled to.
How To Draw Up an Investment Agreement
Larger companies prefer hiring a lawyer to take care of their documents. Businesspeople who can’t afford lawyers usually turn to contract templates. While templates can be useful in most situations, they aren’t perfect for everyone.
The following table shows some pros and cons of investment agreement templates:
|By using an investment agreement template, you will learn:
||These are the biggest disadvantages of contract templates:
You should adjust the template to your business needs and make sure that the final contract is clear and professional. If you want, you could hire a lawyer to review the agreement once you finish writing it.
What To Include in an Investor Agreement
While every investment agreement is unique and includes different clauses, most of them should cover the following information:
- The names and addresses of both signing parties
- The purpose and terms of the investment—you should state:
- How much money the investor will provide
- When the transfer will be made
- The type of investment (cash, check, wire transfer, or tangible assets)
- How many tranches of funding the company will get
- For how long the agreement will be valid
- If and when the investor should receive the return on investment (ROI)
- Whether the investor has management or voting rights in the company
- The terms of the ROI, such as:
- What the investor will get in return
- The interest rate you agreed upon
- Whether the rate of the ROI depends on the success of the investment
- Potential restrictions regarding the rights of the investor
- Confidentiality clause
- The consequences for violating the agreement
- The strategy for solving potential disputes
- The date of the investment
This is only some of the basic info your contract should include. You need to include any additional info that applies to your situation.
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