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4+ SAMPLE Investor Contract
What is an Investor Contract?
An investor contract is an agreement between individuals where one will be the investor who will invest a particular amount of money with the interest of getting a return from the money invested, and the other is the company who will take the loan. This investment is common to businesses where investors will ride on the popularity of the business. They will invest some money that can be used as capital to invest in the business. It benefits business owners because they do not have to enter business loan agreements just to have capital for their business. Investors can help them to grow their business. They just have to share with the profits because investors need a return on their investment.
Whether you will have a real estate investor contract, an angel investor contract, or a business investor contract, you have to ensure that your business investment will have a certain profit. To do this, you must check the business plans of the companies that you will like to put your investments in. You have to know if their products are sellable enough to gain a profit that you can approve of. You also have to examine if you will have a good business partner. You may also enter into business partnership agreements as you enter investor contracts. Be sure that the business owners are good to have business with. You should ascertain that you can get your share of the profits of the business.
Before investing in any business, you may take a sample investment to make sure that you will have a good investment. It will not be wise to invest a big amount of money in a small business where you do not know if you will have guaranteed investment. Whether you will have a short-term investment or an equity investment, you must ensure that the business where you will invest your money has popular products. If you know that this business can sell its products, you will be assured that you can gain from it. It will be easy for you to give venture capital to a business that you know is profitable.
Examining business plans is your best resort to know if you will invest in a business or company. Whether you will invest in real estate or will invest in an artist, you should remember that you are risking your money. Do not invest in something unless you are sure that it is good enough to give you returns. It may just seem a simple investment but you are just still wasting your money if the business will not work well. Do not consider your investment as a personal investment but be sure that you will have it as a strict business. The purpose of investments is to gain more money. So, you have to ensure that you can gain profits from the investor contracts that you will enter.
Types of Investor Contracts
If you want to enter an investor contract for small business, maybe you should want to first know the types of investor contracts. This will help you to decide on your investments and will inform you of the benefits of each contract. You will have the choice to select the type of contract that you will want to have. Read and consider the following types of investor contracts:
Stock Purchase Agreement
If you want to sell your business as a stock, you can have a stock purchase agreement (SPA). This agreement is a contract between two parties, an investor and the shareholder who sells the shares of the company to the investor. The stock deal is bought directly from the company. It is an acquisition to have a private business. Usually, small corporations sell stocks. In this agreement, the investor assumes to have the title of all the assets. Or you can agree to give the investor a set of assets.
Non-statutory Stock Option Agreement
A non-statutory stock option (NSO) is a type of stock that is not an incentive stock option (ISO). It is also known as non-qualified stock options. This type of investment is preferred by investors. It is because they can have no restrictions. Also, there are no formal requirements that are needed. This investment is common to employees and contractors. The investment is flexible and easy to be issued. Though it is easy to provide, you still have to keep the SEC guidelines. Getting an attorney is crucial before you use it.
Statutory Stock Option Agreement
The statutory stock option is an example of an employee stock option (ESO). They are given to employees by companies as compensation. This way, they can make key workers stay with them. The investment has a tax advantage. It is comparable to an incentive stock option (ISO). This is common when companies want to reward performance or when they have a top member of the team. It is very different from a non-statutory stock option. It includes perks and sometimes, a share of profits. The company can offer an extra incentive if the employee can contribute better to the company. If they can lead the company to success, then they can have a sure reward. A statutory stock option needs a document to be able to give incentives to employees. The options can be exercised within 10 years after the investment has been given to them. It can be sold after a year. The taxation in this investment is complicated.
Convertible Debt Agreement
In the convertible debt agreement, the company will borrow from the investor to pay the loan with the shares of the business. It has a loan agreement that has repayment terms. There is a timeframe and the interest should be paid. The investor can convert the loan to privileges. He or she can have an option to make the company have a forced conversion.
Restricted Stock Agreement
A restricted stock agreement is a stock option that is given to employees after completing certain requirements for some time. It is called restricted because it has a vesting schedule. This investment depends upon performance goals and great milestones that can be done by employees. The vesting time can last for a few years. The employees cannot sell the restricted stock units (RSU) at these times. The restricted stock is not a taxable income by the IRS. When it is due, employees can sell their shares.
This contract is for investors who do not like to have ownership of the company. They will invest money expecting royalties in return. They should get percentages from profits and that is how they can get their returns. They can settle for commissions or percentages from revenues. If you are not interested in running the business of the company where you have invested, you can have an investor contract that can give you royalties. You can be sure of the money that can come from the profits of the business. You do not have to carry the burden of running a company that you are not familiar with.
Tips on Investor Contract
Are you looking for an investor contract sample or an investor contract agreement sample? Do you need samples because you want to gather tips that you can use in writing your contract? If you are searching for tips, we can help you. We have gathered some tips that you can use in creating your investor contract. They are the following:
How to Write an Investor Contract
Do you need an investor contract template or an investor contract example? Are you needing it because you are about to create an investor contract? If you need some help in writing the contract, we are here for you. We can provide you with some steps that you can apply in writing an investor contract. They are the following:
Step 1: Start with Recitals
Start by stating the date of the agreement. Then mention the name of both parties. Add their address and contact information. If one of the parties is a company, write the business name and the business address. You need to be detailed with the recitals. Be sure that all information is correct.
Step 2: Create “Whereas” Statements
The first “Whereas” is the company that is needing an investment. The second “Whereas” is the investor, the individual or company who will lend money for the business. Then, you should make a “Therefore” statement following this. It should state that the two parties are having an agreement.
Step 3: List the Articles of the Contract
Whatever you have negotiated upon or everything you have agreed upon will be written as articles in the contract. Be careful with each article, stating them one at a time. List them as “Article 1”, “Article 2”, etc. One of the articles should state the amount that the investor will invest, the way how he or she will invest it, and what will the investor get from the investment.
Step 4: Mention Payment Terms
These terms will depend on the amount of the investment. A lump sum payment is applicable in some contracts, where the amount will be transferred to the bank that will be listed in the agreement. Sometimes, the investment can be given in several payments.
Step 5: Comply with Deliverables
The contract may need some requirements for the two parties. They must comply with the deliverables that they have to give. They should provide them at specific dates that are written in the agreement.
Step 6: Sign the Contract
After the contract is diligently written, you can show it to the investor and make him or her sign the contract. After that, you can have the money that you need to expand your business. You can start to have a business relationship with the investor, having him or her help you with your business.
How much return do investors get?
The usual percentage that angel investors require from their investments is 20-25% of the money that they have invested. Through this, they can have profits from their investment.
Is investing a good idea?
Yes, it is a good way of how you can make your money grow. If you will just let your money be stuck, it will never have profits. But through investments, your money can multiply.
If you need a certain capital for your business, it is time for you to search for investors that will help you. You just need to engage in an investor contract that will define your business relationship with the investor. Are you looking for a template for an investor contract? This post has 4+ SAMPLE Investor Contract in PDF. They are editable and free. Download now!