Big and successful businesses are not the only establishments that are able to draw in investors. Even small and upcoming businesses must be able to secure investors if they want to grow and be also successful in their industry. But what are investors? These are individuals or entities who commit capital and expect to receive financial returns. Investors accomplish important financial objectives like funding a college education or accumulating additional wealth over time. For small businesses, to attract an investor, one must be able to create a convincing and well-drafted business plan or a proposal. This may be the key to securing investors who are willing to finance your company. Once you’ve managed to do so, the next step to the process is to get hold of a small business investor contract so you may be able to lay out the terms between this particular business partnership. To learn more about this, let us discuss this further below. Should you need any help preparing an investor contract, check out our free small business investor contract that is available for download on this page.
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What Is a Small Business Investor Contract?
Whether you are an investor or your company is seeking out an investor, an investor contract is an important document for this type of transaction which is applicable even for small businesses. Speaking of investors, they can be within the company—a shareholder who wishes to invest in more funds, an entirely new investor, or an individual representing an association of investors. So, a small business investor contract is a legal document that specifies rights and obligations between a company and its investors. Such a document is needed if both parties would need to protect their best interest and to avoid any future disputes and misunderstandings between the shareholders.
How To Create a Small Business Investor Contract?
Companies would benefit from the contract in a way this would allow them to preserve its integrity by laying out and defining what the investors are entitled to. Whereas for investors who have to shell out their capital and ensure they are properly compensated, the contract will also give them a chance to participate in the company’s business strategies to make sure they are on the right track to success. Also in case of a breach, a contract is enforceable so legal action can be authorized. Now every investor contract is unique and different each company has its own policies and terms yet most of them should cover the following details below.
State the names and addresses of the investor/investing company and the company/business owner.
2. Terms of the Investment
The terms and objectives of the investment should be able to address the following:
- Capital or funds to be invested
- The type of investment to be made whether this is in cash, cheque, or tangible assets
- How many tranches/ percentage of the funding will the business get
- Duration of the funding/investment
- Rights of the investor when it comes to operations and management
- Restrictions regarding the rights of the investors
3. Return of Investment (ROI)
One of the most important sections of the contract is the terms when it comes to the return of investment. You will need to provide what the investor will get in return, the interest rate that was initially agreed upon, and whether the rate of the ROI would depend on the success of the investment.
4. Confidentiality Clause and Other Important Details
Like most contracts, it is vital to include a confidentiality clause to restrict any unlawful distribution of propriety data and information that can compromise the investor or the business. Also, you will need to take into account the consequences in case there is a breach in the contract, and remedies to solving any potential disputes.
Lastly, the contract must contain the signatures of both parties along with the date of the investment.
What Is the Difference Between a Trader and an Investor?
A trader is an individual who engages in buying and selling stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. Whereas an investor may be content with annual returns of 10% to 15%.
What Is a Passive Investor?
A passive investor does not participate much in the daily decisions of a company, and they do not seek to profit from short-term price fluctuations or market timing.
Is Investing a Good Business Opportunity?
Before investing it is advisable to study the market or the business you wish to invest in. As there can be opportunities and setbacks in every investment. You should be willing to work a bit for both stability and financial return.
As mentioned, small business still needs investors to help them grow and prosper. So, start working on that small business investor contract now, with the help of our sample templates you will find this easier to prepare.
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