Simple Investor Agreement Template

Once you’ve impressed potential investors with your business plan, it’s time to put their promises of funds into a contract. An investor agreement, also known as an investment contract or subscription agreement, is a legally binding document that outlines the terms and conditions for investors agreeing to contribute money (or other forms of capital stock) towards your small business. It is an essential document to establish the relationship between an investor and a company, outlining both parties’ rights and responsibilities. Let’s take a look at the components of a simple investor contract and how to create one.

 

What is an Investor Agreement or Contract?

An investor agreement or contract is a legal document that outlines the terms and conditions of an investment. It typically includes the details of the parties involved, such as the company and the investors, and outlines their respective rights and obligations. The investment agreement also sets forth how proceeds from the investment will be distributed among the parties, how funds will be used, and any other relevant information pertaining to the investment.

Additionally, this agreement may contain provisions related to confidentiality and non-competition clauses in order to protect both parties’ interests. The investor agreement serves as a binding contract that ensures both parties understand their respective roles and responsibilities in regard to any investments made by the investors. These legally enforceable documents are important for protecting all involved parties’ interests regarding an investment, clarifying expectations around returns on investments, and avoiding potential legal disputes down the line.

 

 

Why You Need an Investor Contract For Your Business

As you can see, investment contracts are crucial documents for any business that is looking to receive funding from investors. It brings about several benefits and protections, including the following: 

• Ensures you get the funding you requested: In your business plan and pitch deck, you outlined your business goals and why you need investors to help you reach them. An investor contract ensures that the investors provide the funds they promised to give you to achieve those goals.
• Protects the interest of both parties:  The investor agreement will help protect the interests of both parties, by clearly outlining expectations and potential outcomes. It ensures that everyone is aware of any potential risks associated with the investment as well as how each party can benefit from it.
• Ensures both parties are aware of rights and obligations: An investor agreement will make sure that both the company and the investors are aware of their rights and obligations. This helps in avoiding any legal disputes that may arise in the future.
• Establishes trust: A written contract helps to build trust between investors and business owners, as they both understand what each party is responsible for and their respective expectations.
• Provides legal protection: A clearly written investor agreement can help protect your company in the event of any legal disputes or misunderstandings related to the investment. It serves as a reminder that both sides are working together towards a common goal, which helps guarantee a successful outcome.
• Clarifies expectations for return on investments: For investors, an investor agreement helps ensure that their expectations for returns on investments are clearly understood. It also serves to protect the business in the event that the investors do not provide the capital they had agreed to.
• Prevents misunderstandings about the terms and conditions: An investor agreement helps to clarify any misunderstandings that may arise regarding the terms and conditions of the investment. This helps to ensure that both parties are on the same page when it comes to obligations, rights, and expectations.

 

Components of a Simple Investor Contract Template 

Since the investor contract is a legally binding document, it should include the following components:

Contact Information

This should include the contact details of all parties involved in the agreement. This section can include the full name, address, and contact numbers of the investors and business owners.

Purpose Of The Investment

This component should outline the purpose of the investment, such as starting a new business venture or expanding an existing one. If the funding is for a specific project, it should also be outlined in this section. Or if there are several different projects, each should be listed separately, along with how much of the investment is allocated towards each project.

Structure Of The Investment

This section should include information on how the funds will be used, as well as the payment schedule and any other relevant details. This section should answer all the basic questions about the investment, such as who will be responsible for what and if there are any restrictions.

Return On Investment

The agreement should also include details on when and how the investor will receive a return on their investment. This could be either in the form of monetary returns or other forms of compensation.

Right To Withdraw

The agreement should outline both parties’ right to withdraw from the investment at any time. Some common reasons why an investor may wish to withdraw their funds include a change in business strategy, inadequate returns on investments, or a breach of contract.

Rights And Responsibilities Of Each Party

This section should clearly define the rights and responsibilities of both the business owner and the investor. These should include details such as who is making decisions about the investments and how profits are distributed. This section should also outline what rights each party has if the other fails to live up to its obligations.

Signatures

And, of course, the agreement needs to be signed by both parties in order to be legally binding. If one party doesn’t agree to the terms, then the agreement isn’t valid.

 

 

How To Create a Simple Investor Agreement For A Small Business Investment

Creating an investor agreement is a fairly simple process that just requires some careful consideration of the components listed above. By following the steps below, you can create a simple investor agreement that will protect both your business and the investor.

Step 1: Outline the purpose of the investment

The first step is to clearly outline why the investment is being made, including any goals for the project being funded. It’s important that the funding is only used for approved purposes, such as launching a product or expanding the company. Therefore, these terms need to be agreed on before the contract is signed.

Step 2: Define the investment amount

The second step is to determine the exact amount of money that will be invested. This should include any additional capital, such as stocks, bonds, or real estate that is being used to finance the project.

Step 2: Agree on the basic structure of the investment

Now it’s time to agree on the details and structure of the investment, such as the payment schedule and who is responsible for what. This should answer all basic questions about the investment and make sure both parties understand the terms of the agreement. It’s important to note that if one party pulls out before the investment has been fulfilled, the other may be entitled to compensation. Therefore, these terms need to be clearly outlined in the contract.

Step 3: Set a return on investment

This step involves setting a timeline for when the investor can expect to receive a return on their investment. This could include monetary returns or other forms of compensation. The timeline should be clearly outlined in the agreement, as well as any additional conditions that could affect the returns.

Step 4: Define the rights and responsibilities of each party

The next step involves defining the rights and responsibilities of both parties. This should be done in detail to ensure there is no ambiguity about who is responsible for what.  It should also include details such as who is making decisions about the investments and how profits are distributed.

Step 5: Have a legal professional review the contract

It’s always a good idea to have a legal professional review any contracts before they are signed. A lawyer can help ensure that all the terms and conditions are binding and legal in order to protect both parties. They can also point out any areas that may need to be revised or clarified.

Step 6: Sign the agreement

The last step is to sign and date the contract, thus making it legally binding. It’s important that both parties agree to all terms before signing, as any changes or alterations could render the contract invalid. Once signed, the agreement should be kept in a safe place for future reference.