Receiving investment is a happy time for any new business. It usually takes a lot of work to find the right investor. When you do, it is important to have an investment contract that represents the interests of everyone involved. The investor will want to make sure his investment is protected, and the company will want to make sure the funds are delivered smoothly and that the founders have protected their stake in the venture. This makes writing a proper investment contract a critical first step in the business relationship.
Write the Opening Recitals of the Investment Contract
The recital should state the date that the agreement is entered into, as well as the name and address of both parties involved in the contract. Use the company name and address if applicable, since the company contact will be identified later in the agreement.
Make Your "Whereas" Statements
This basically states that "Whereas" the first company is seeking investment into its venture, and "Whereas" the second company is willing to provide the investment. Follow this up with a "Therefore" statement. This usually reads as "Therefore, in consideration of the covenants and promises considered hereinafter, the parties agree as follows:"
List the Articles of the Agreement
The articles consist of everything that has been discussed and agreed to previously, only they now take written form as part of the investment contract. List the articles one at a time, with them appearing as "Article 1", "Article 2", etc. The typical articles for an investment contract include the amount of money to be invested, how the investment will be used and what the investor can expect to receive in return for their financial contribution.
Note the Payment Terms in the Investment Contract
These terms vary from company to company, and often depend on how large of an investment is being received. Sometimes the investment is given as a lump sum payment, in which case the amount of the transfer, the agreed upon date and the receiving bank account details should be listed. Other times the investment is distributed across several payments. In this event, refer to an attachment, and add a sheet at the end of the contract that lists the dates and amounts for each transfer into the receiving bank account.
Identify Any Deliverables
Many times the investment will require certain benchmarks to be reached by specific dates, or products to be developed as a result of company activities. These items are known as deliverables. List the deliverables in the investment contract, along with the date that each is due by.
State the Term and Termination of the Contract
The term identifies the length of time that the agreement is valid for, and is essentially the length of time it takes the investor to make the financial contribution and to receive the agreed upon return on investment (ROI). The termination aspect identifies how the agreement will end, and in what manner the parties involved can terminate the contract early.
Show the Company Contacts for the Investor and Company
This portion of the investment contract should list the name, title, address, telephone number, fax number and email address for both companies. List the preferred method of contact for each in the event that any portion of the contract requires discussion or amendments.
Clarify the Choice of Law
Because the law may vary slightly from one location to another, it is important to clearly state what area will have jurisdiction over the agreement. In most cases, the laws of the state where the investor resides is listed as the law that rules the contract, and any disputes must be taken to the appropriate courts in that state.
Sign the Contract
Each party much sign the contract in the presence of two witnesses. Each witness must also sign the contract. Ideally, one witness will be a Notary Public and be able to notarize the signatures, although this is not necessarily a requirement. Sign two copies of the contract, so that each party may retain a copy for their own records.
Always have the investment contract reviewed by an attorney before signing it. Investment contracts can be simple and are not always complicated documents, but it is still a good idea to have a lawyer look at the agreement to make sure your best interests are properly represented.