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.

Royalty

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:

Ensure a Shareholder’s Agreement: Be sure that when having an investor contract, you can also secure a shareholder’s agreement. This is the best way to have formal agreements. You can have good governance for your startup business. You will know who will lead the company and what will be the level of shareholders. This is important if you will have multiple shareholders. Having co-founders should make you certain that your business is 100% aligned before you consider having investors. You need to have several decisions first in terms of sales and marketing. Exit scenario is also important. A shareholder’s agreement is recommended because it will make the shareholders think of the business for any events that can happen in the future. This way, you can handle all the different processes. You can know the legal concepts that you have to undergo in your business.Choose Investors Wisely: There are different kinds of investors. There are Business Angels, wealthy entrepreneurs, or VCs. But you have to be wise in choosing an investor for your business. Remember, you are giving a right to that person to decide in some parts of the business. You have to pick an investor that you can have a good business with. One of the categories that you can consider is the percentage that the investor will ask for you. Is it a fair percentage or a fair amount? Or it will turn out that only he or she will benefit from the business? The main purpose of getting an investor is to improve your business. Choose someone who can help you and even kind enough to mentor you. Pick somebody whom you will have a good relationship with. You will share your business with that person for a considerable time. You have to choose investors wisely. To help you in your decision, you can research the investors to know about their background. It is one great way to know if the investors are good. That way, you can be confident that you will deal with a good person or entrepreneur.Give a Good Percentage: To have a good business deal with investors, you can offer them a good percentage for the profits of your business. If you can have a good offer, they can accept your business proposal and will invest in your company. Offer a percentage that you know will be enough for your business to have its profits. Do not give an overly high percentage or you may lose your own profits. Give a reasonable percentage that will be enough to encourage investors. Be the one to negotiate the percentage or the price. For one thing, you are the one who is familiar with the sales of your company. If you can offer good percentages in profits, your company can raise many investors that can help you to expand your business. It will be a good thing for your company because investors can help your business to grow.Consider Your Rights: You can offer the shares of your business, but you should know that you should retain all your rights for it. It must be better if you know all your rights after having an investor. It is recommended that you consult a lawyer before entering into any investor contracts. This way, you can protect your interests for your business. It will be hard for you to enter investor contracts, then later found out that you have already somehow sold your business to investors. You need to be wise. You have to know the ins and outs of dealing with investors. You may never know. Some people takes advantage of others when they have found an opportunity. So, avoid being a victim. Know your rights for your company when having investors.

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.

FAQs

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!