Many businesses, most especially small companies, and startups need investors to fund their business. These investors play an important role in not only helping a business become successful but also in allowing it to grow into a large organization. Finding the right investor/s for your company can be difficult especially since you want an investment wherein both the investor as well as your small business and its shareholders can benefit from. When you find an investor for your company, it is important for you to protect both the investor/s and the business through a written document.
Whether you are the business owner or the investor, it is important that you create and provide a written investment contract that will outline the rights as well as the responsibilities of both parties involved in the agreement. In this article, we will be talking about the importance of an investment contract, the steps on how you can create your own contract, as well as the different types of business investments. The guide and the samples that we have provided below will help you to create an effective and highly usable investment contract for your business.
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Why Is There a Need for an Investment Contract?
For any business agreement or partnership that you may enter into, especially something that involves money, it is important for you to always have a written contract ready. This protects both parties should anything happen throughout the entirety of the transaction or agreement. Here are the reasons why you need an investment contract:
- An investment contract is important since it lays out the terms and conditions of the agreement. This allows both parties to know what to expect from the investment beforehand and prevent any party to claim that there is a misunderstanding in the future. You may also like Contract samples in Word.
- An investment contract is a legally enforceable and binding document which is important should any party breach the provisions and terms of the document.
- An investment business contract indicates when an investor/s should expect a return on his/her investment. Other information, including what happens to the investment should the company be dissolved or goes bankrupt, should be stated. This is important especially for the investor to ensure that his/her investment is protected.
- An investment contract also contains information on the scope as well as the limitations of the investor in the company or business that he/she has invested his/her money in. The investment contract specifically indicates whether an investor has any management or control rights in the company. It also specifies the type of documents or reports that an investor should receive from the company which outlines the finances of the business during a particular period of time. This is important for the investor in order for them to keep track of their investment.
These are only some of the reasons why an investment contract is essential, not only for the business but also for the investors. An investment contract is as important as any other type of contract used in any business transaction. You may also check our business contract samples available for download on our website.
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Steps for Creating a Highly Usable Investment Contract
When you create an investment contract, it is necessary that you understand the various contract laws, depending on your location since this varies from state to state. Since you are creating a legal document, it is important that you include all the essential elements to ensure that your document is legally enforceable and binding. Listed below are the steps to help you create your own investment contract:
- First, provide a title in your document. To ensure that both parties involved in the agreement clearly understand the type of document you are creating, it is essential that you specify the title in the contract. Write the words “Investment Contract” at the topmost section of your contract. You may also like free contract templates.
- Create a header. The header is one of the most important aspects of your investment contract since it includes the date when the contract is created, as well as identifies the names of both the business owner or company name and the investor. Write the names of both parties, including their addresses, and the date the contract is developed. You can also like contract samples.
- Write the whereas statement of your contract. The whereas statement refers to the section that indicates that one party is providing a particular amount of investment to the other party in the transaction and that both parties agree to the terms and conditions stipulated in the contract being developed.
- List down the various articles of the contract. This section basically refers to the terms and items that have been agreed upon by both parties before the creation of the document. It is important for you to include all the important information such as the specific amount of money being invested to the company, as well as how this amount will be used for the business and the amount that the investor will get from the investment. You may also like contract samples in Doc.
- Write the payment terms of the contract that you are developing. This includes how the investment is sent to the company and includes information such as the bank account details and other important information. The payment terms also include the payment that the investor will get after a particular period of time.
- Specify the deliverables in your contract. The deliverables refer to the items that the company is expected to achieve, as well as the products that they need to develop in order to reach a specific target. If your sample agreement contains any deliverables, it is essential that you list them in the investment contract that you will create.
- Indicate the term, as well as the contract termination. This is where you will indicate the length of time of the validity of the document. An investment contract’s term depends on the length of time wherein the investor can provide the financial investment and when he/she will receive the return on investment from the company.
- Write the contact information for both parties to the contract. This section should include the names of both parties, address, contact number, email address, and other information.
- Lastly, provide in the contract wherein both parties can provide their signatures. The signature of the investor and the company representative or owner should be present in the document, as with any type of contract that you will create. The signatures of both parties indicate that they have agreed upon with all the information presented in the document. This also means that they understand the consequences that can happen should they breach the contract.
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Entities That Are Involved in Investment Contracts
In any investment contract agreement or transaction, there are different parties involved. These parties or entities are the ones that can be affected should anything wrong during the transaction. When developing an investment contract, it is important for you to understand all the parties that may be involved in the agreement. The parties involved in an investment contract are as follows:
The Shareholders of the Business
The shareholders of a business refer to the individual/s who own the company or the entities who have created and developed the business. They make the important decisions throughout the entirety of the business’s operations. Other entities can also become stakeholders of the company by purchasing a part of the business through stocks.
The Business Investors
Business investors refer to the entities, which can either be an individual or another company, that have invested a certain amount of money to the business. Before they invest in a particular business or organization, the first thing that they look at is the business’s financial statements in order for them to understand whether a particular business is earning or losing money and if it’s worth investing in. This is an important step to ensure that he/she will not lose an investment. Furthermore, an investment is not only limited to money currency but may also include commodities, debt securities, equity, and so on. You may also like contract samples in PDF.
By following the guides that we have listed above, you will be able to create an effective and useful investment contract should you need one for a particular purpose. You can download the samples available if you want a reference or you can download our templates so you will have a well-formatted and ready-to-use contract. We also have other types of contracts that you can check out on our website. These include an employment contract, land contract, and an advertising contract.
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