Question

Topic: Other

Investor Contract

Posted by Anonymous on 9/14/2010 at 9:47 PM ET 250 Points
I have an Investor about to invest in my business. I am asking for $1.1 million. I have the business plan complete with proforma already done. But before he injects the investment amount mentioned above I provided him with a $50,000 Market Test Plan for the product that will place the product in a good marketing position. I did this to show that the concept will work and that I have confidence in my product. This got his attention and he will provide the funding for the Market Test. My goal is to give him a 10% equity share in the company, which is a Nevada Corporation, for the $50K. Contigent on the Market Test going well I plan to give him 20% more for a total of 30% equity in the company if he injects the $1.1 million.
My Question: What type of contract would this be, an Investor contract, Equity contract or some other type of contract? Or are they the same? I will consort a lawyer for this but I'd like to hear opinions from here also. I do want to know something about this process and why I would chose a certain type contract for this situation.
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RESPONSES

  • Posted by mgoodman on 9/15/2010 at 2:04 AM Moderator
    I suspect you will not get much useful input here, because what you are asking requires the expertise and knowledge of an attorney.

    We are marketing folks ... with plenty of experience as marketers and businesspeople, and enough good sense to not offer anything that could be construed as legal advice.

    It sounds like you have already come up with a financial arrangement that will give you what you need and want, and that your prospective investor has basically agreed to the deal. Your next step needs to be selection of, and consultation with, an attorney who is experienced in this kind of contract law.
  • Posted by telemoxie on 9/15/2010 at 7:22 AM Accepted
    maybe the solution is not some sort of contract with your existing corporation. Maybe the solution is an entirely new corporate structure.

    I strongly agree with the above comments that we can not give you good legal advice.

    Having said that, in preparation for your discussions with attorneys, it probably makes sense for you to become familiar with some of the legal terminology and some of the key issues you will be facing and negotiating. For example, you might want to visit your local library and read a book or two on business structure and business contracts...

    ... But it sounds like you need the advice of an attorney. Good luck.
  • Posted by Inbox_Interactive on 9/15/2010 at 8:19 AM Accepted
    Run, do not walk, to an attorney -- one who understands securities law.

    The document that covers the relationship between the investor and the company is often called a "subscription agreement," but it can be called anything you want. The name of the document is meaningless; it's what's in the document that matters.

    You need to cover your bases well here. You need to be sure that you have not violated any securities laws, because if you have and the deal goes south, an investor can come after you claiming damages of triple the investment.

    Whatever document your investor signs, it needs to say that he understands the risk fully, that a full loss of his investment is possible, and that he's financially capable of incurring such a loss without undue hardship.

    There are many laws related to securities and how they are issued and possibly registered. There are also numerous exemptions to these laws, usually based on the size of the offering, the private nature of the offering, the sophistication or wealth of the investor, or something along those lines.

    This is why you need to be 100% sure that you're working with a securities attorney.
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