While committing capital does not guarantee the investors of financial returns, there are still those who are willing to take risks. These people play a pivotal role in paving the way for a business’s development. For this reason, business owners should maintain a professional and strong relationship with investors. How so? By reaching a mutually beneficial agreement and putting it into writing. Learn more about the fundamentals and importance of an investment contract as you read this article.
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What Is an Investment Contract?
In the corporate world, verbal agreements between two parties would not suffice, regardless if you are dealing with a reputable or small business. And this is especially true when making arrangements with investors. Both the investor and the company must know the significance of a simple investment contract. This document is a written agreement between the two parties—giving the investors a full understanding of what to expect in return for their investment. Like any other investment contract sample, a small business investor contract should also specify the investor’s rights within the company and the types of financial reports they will receive. Most importantly, an investment contract between two parties should state what will happen in case of bankruptcy.
How To Write an Investment Contract
Writing documents will always be a part of running a business. While some professionals have the luxury of time to create one from an empty page, others don’t. That is why we’re here to help you. If you are tasked to create an investment contract, you can download one from the investment contract templates we have compiled. Our compilation ranges from simple investment agreements between two individuals to guaranteed investment contracts. But do you want to know the process of creating it? Here’s how:
1. Title the Document
Just like a business investment contract sample, the first step to creating an investment contract is to provide a title for the document. You can write this at the top portion of the page or on a separate front page. The next thing you will do is to insert the header, which includes the date of the contract’s creation and the parties involved.
2. Specify the Terms and Conditions
One of the most important components of a legal document is the presentation of the terms and conditions. In this clause, specify the amount of investment, where the company will allocate this, and what the investor will get in return.
3. State the Payment Terms
When investors fund a business, the payment terms should be as clear as possible. Make sure to indicate how the investor will send the agreed-upon amount of investment. Other essential details, such as the bank account information and the date of payment, are also a part of this clause.
4. List Down Deliverables
If there are any deliverables, see to it that you identify them. These items refer to the particular products or services offered by the company to the market as a result of a project. Aside from the deliverables, you should also include the expected outputs of the company and their respective due dates.
5. Discuss the Terms of Termination
Much like a shareholder agreement or a fee agreement, an investment contract also has limitations in terms of its validity. That is why it is crucial to specify the duration the contract will cover. Moreover, you must also discuss in the document the arrangements for termination. Note that the term of the contract depends on the agreed-upon period of investment and when the investor will receive financial returns.
What are the three main types of investments?
The types of investments fall into three main categories: stocks, bonds, and cash equivalent. Investing in stocks means buying a share of the company’s ownership. On the other hand, investors who buy bonds lend a fixed amount to a company or the government. Lastly, cash equivalents enable investors to protect and have access to their investments.
How do investors get their money back?
Some options are available for businesses to pay back their investors. The first one is through a straight schedule, wherein companies will pay the investors based on their percentage of ownership. The other one is through preferred payments, wherein investors receive money based on their equity on the company.
What is the safest type of investment?
According to Investopedia, the safest types of investment include certificates of deposit (CDs), money market accounts, and Treasury Inflation-Protected Securities (TIPS). Although investing will always involve risks, these types are considered as safer than the others.
Aside from acquiring funds from investors, most of the reputable companies also invest in specific fields to realize their goals. Nowadays, several companies invest in research and development with the hopes that it will help them accomplish business success and innovations in the long run. Amazon, one of the largest companies in the world, invested more than $22 billion for R&D in 2018. Now, whether you are an investor on an investee, make sure to review the investment contract before signing it and adhere to the agreed-upon stipulations.
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