When starting a small business, one of the most important steps is securing investments. However, it is crucial for both parties to have a clear understanding of the terms and conditions of such investments. This is where having a sample contract for investors in a small business comes in handy.
Below are some essential elements to include in a contract for investors in a small business.
1. The amount and type of investment
Clearly state the specific amount and type of investment being made by the investor. Will it be in the form of equity or debt? How much will be invested, and when will payments be made?
2. The ownership percentage and voting rights
Specify the percentage of ownership the investor will have in the business, as well as any voting rights associated with the investment. This is essential for determining decision-making power in the company.
3. The expected return on investment
Outline the expected return on investment for the investor. Will it be in the form of dividends or capital gains? What is the anticipated timeline for the return on investment?
4. The exit strategy
In the event that the investor wishes to exit their investment, there should be a clause in the contract that specifies the process and any associated costs or penalties.
5. The terms of the agreement
This includes the length of the contract, any renewal options, and the circumstances under which the agreement can be terminated.
6. Confidentiality and non-disclosure agreements
Include clauses that protect the company`s confidential information and trade secrets, as well as prohibit the investor from disclosing any information about the investment to third parties.
7. Governing law and jurisdiction
Specify the state or country whose laws will govern the contract, as well as the jurisdiction in which any legal disputes will be resolved.
Overall, having a well-drafted contract for investors in a small business protects both the business and the investor by outlining the terms and conditions of the investment. It is essential to ensure that the contract is clear and concise and includes all necessary provisions to avoid any misunderstandings or disputes down the line.