As a small-business owner, you may require an investment contract to bring outside investors into your business or for your own routine investments in other businesses. An investment contract is just a basic document describing the terms of an investment and when and how the investor can expect a return on her investment. Most simple investment contracts will contain many similar terms.
Terms of Investment
A good investment contract will clearly identify how much the investor must provide, when the investment is to be transferred and the form of the investment. Most investments will be provided in cash, check or wire transfer. However, some investments may take the form of tangible assets. Your agreement should specify this. If the investor is providing the business with tangible assets, you should contemplate how you can continue business operations if the investor asks for those assets to be returned.
Return on Investment
Your investment contract must state when the investor can expect a return on her investment or otherwise ask that the investment be returned. Consider whether the investor will be paid a flat interest rate or a return rate based on the success of the investment. Finally, your investment contract should contemplate how the investment will be treated if the company is dissolved or forced to enter bankruptcy. The contract should disclose any risks associated with the investment so the investor is aware that a return on the investment is not guaranteed.
Reporting and Control
An investment contract should also specify whether the investor will have any management or control rights within the company. For example, sometimes investors are given voting rights that allow them to have a say in the business and its management. Investors may be given rights to vote for the directors or executives. For smaller companies, an investor might be given a direct right to control the day-to-day operations of the business. Your investment contract should specify what type of reports the investor can expect to receive regarding company finances and if the investor has the right to audit the books.
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