Your contract must indicate when an investor can count on an ROI. If he or she does not get a return, the investor may require you to return the investment. In an investment contract, the bases describe the terms of the investment as well as how and when the investor should expect a return. The basic information that should be included in an investment contract include: This means that you should offer the same discounted prices to the original investor if you offer limited additional shares to a high-level investor or a small number of shares at a significant discount only to get them on board. They would probably still buy at that discounted price because they would buy additional shares at a value below market value, which would effectively dilute your property relative to theirs. The amount of approval depends largely on the number of investors invested in the company. If there is only one investor, it is customary to say that none of the above issues can be taken without the prior consent of that investor. However, if there is a consortium of investors, it is impractical and tedious to require the agreement of each investor before having a shareholder or board matter. In these circumstances, it is much more common to require the agreement of investors who, together, are held by investors a certain percentage of the shares (which are usually preferred shares, see below). «investment agreement,» an agreement between the custodian and the company under which the custodian applies the shares held by the nominee on behalf of the investor s) and defines the full terms to which the custodian (acting on behalf of the investor) agrees to subscribe to these shares. 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.
Investment is rarely a sure thing. ROI is always a prediction or prognosis, no prediction or hard rule. When investors invest money in a business, there is still some risk and, in general, the level of risk is proportional to the reward. Investment contracts face uncertainty in one way or another, and one possibility is to offer «deal sweeteners» to compensate for the relatively unfavourable risk. Because investments can be risky, there are specific rules and rules to protect the parties involved. In the United States, these rules are due to the Securities and Exchange Commission (SEC). In our model, we won`t contain the specific phraseology and special clauses you need for the SEC, but you should certainly consider it if your company needs it. In general, the SEC has rules for reporting and disclosure of investors. Some investment relationships require companies to prepare quarterly or special reports to all investors and even notifications when certain events occur within the company.
In some cases, investors could obtain voting rights and the offer to companies should never implicitly grant or deny those rights. In case of questions, your company`s lawyer should always strive to include as much detail as possible and to explicitly describe the rights of investors in the business and the rights they do not have. The basic structure of an investment contract is relatively simple, including the same elements that are required for each agreement in order to make it legally binding and to protect both parties from litigation.