Anyone who has seen the TV show Shark Tank understands that securing investors is often an important part of growing a company. To both maintain and protect your relationship with investors, your investor agreements must be carefully constructed. The best-written investor agreements often include several terms that help create peace of mind that an investment interest will be protected and that funds will be properly transferred. The following will review some of the most important things that people should make sure to include in an investor agreement.
The Basics of Investor Agreements
Investor agreements outline the terms of an investment in a company. These agreements should include several important terms, such as:
- The addresses, dates, and names of each of the parties to the agreement
- The amount of money that is being invested as well as details about how the investment will be used
- Payments terms about how the payment will be made and the dates on which the payment will occur
- The type of investment
- The length of time that the investor agreement will be valid
- Any deliverables to be fulfilled by certain dates
- Any products or services to be developed and certain dates
The Return on Investment
The agreed-on return on investment (ROI) should also be included. Terms should include details about what the investor will receive in exchange for the investment. You might decide that the ROI should be a flat interest rate or even a percent of the success of the investment.
Investor agreements should address what will happen if the company ends up filing for bankruptcy or dissolving. Any risks associated with an investment should also be fully disclosed. Doing so protects both parties in case the company encounters challenges.
Sometimes, parties decide to give an investor either control or management rights within the investor agreement. If you decide to utilize this relationship, it should be contained in your investor agreement. Similarly, companies sometimes decide to give investors voting rights to the company so they can participate in making business decisions.
The role that outside investment plays in growing a business is a complex one. As is true with other types of business deals, it is not without risk. As a result, investment agreements often contain provisions that limit a party’s ability to provide contract value payouts in some situations. When evaluating investment options, it is a wise idea to fully understand the potential risks involved with each term of the agreement.
Contact an Experienced Corporate Law Attorney
Investing is a complicated and risky process. To make matters even more complex, after a company secures an investor, the relationship is not over. Instead, companies should make sure to avoid substantial challenges by properly drafting all investor agreements.
Contact Resnick Law today for assistance navigating any of your contract-related challenges.
(image courtesy of Luca Bravo)