Investment Contract Template

An investment agreement is a customizable document outlining essential terms and conditions of the investment, such as the amount of money invested, the anticipated return, and any restrictions. The investor agrees to provide financial support to the company, hoping to make a financial profit in the future. Create your investment agreement template on Lawrina and download a ready-made PDF document in minutes.

Introduction

An investment agreement acts as a legal paper for a money deal between two groups: the investor and the company that has the investing chance. The investment agreement template sets up an all-around plan that includes the conditions and rules guiding the investment process.

Essential elements that a typical investment contract template free of charge should encapsulate include:

• Nature of the investment;
• Term of the investment;
• Objective of the investment;
• Total sum of the investment;
• Proportion of equity;
• Modality of the investment;
• Projected return on investment (ROI);
• Rights of the involved parties.

The breadth of investment contract samples spans various formats catering to diverse investment types. Some common formats include:

• Stock purchase agreement;
• Convertible debt agreement;
• Non-statutory stock option agreement;
• Statutory stock option agreement;
• Restricted stock agreement;
• Royalty agreement;
• Percentage of revenue agreements; and others.

Because of the inherent risk factor in any investment transaction, investment agreement templates become indispensable. These agreements effectively manage the potential risks that both the organization and the investor might face.

Moreover, the free investment contract template outlines the obligations, rights, and projected duties of both parties under varied circumstances. For instance, dispute resolution methods are typically addressed within investment agreements.

What Are the Main Parts of the Investment Agreement Template?

Each part of an investment contract serves a specific purpose. Understanding these key sections positions you to negotiate effectively, identify issues quickly, and make informed decisions.

Let's explore these components to gain a comprehensive grasp of an investment contract template.

Recitals

This is a fundamental section within an investment contract agreement template. They provide context for the contract and introduce the contracting parties, their motivations, and the purpose of the agreement. Though these recitals don't directly address responsibilities or rights for either party, they essentially set the stage for the agreement. In essence, recitals function as an introductory passage, akin to a constitution's preamble for any country.

Payment terms and procedure

The payment terms and procedure section details the investment amount, the schedule for disbursement, and the accepted forms of payment. Whether the investment is a one-off or happens regularly, details are very important. For example, an investor promising $1 million might pay it all at once or spread it out over a certain period.

Distributions and financial issues

The section is a fundamental part of an investment agreement contract that provisions the financial transactions between the company and the investor. Let's unpack the key takeaway points from this part and structure it according to its main subsections:

• Working out net profit and loss
  This part goes into detail about how the company figures out its net profit and loss for each financial year. It includes needed adjustments like lowering value over time (depreciation), spreading out costs over time (amortization), and taxes, among other things.
• Distribution of net profit
  Here, the agreement clarifies how and when the company will distribute its net earnings to the investor. It outlines the proportion of distributed profits relevant to the investor's shareholding and sets forth the conditions and timeline for distribution. It also accounts for potential circumstances that might affect profit distribution.
• Conditions for non-payment
  This facet of the agreement mentions scenarios when the company may withhold payments to the investor. It states that if the investor fails to fulfill any duties to the company, any money or assets shared will be held back until the issue is sorted out.
• Withholding taxes
  This part of the agreement emphasizes that the company can withhold taxes from any distribution made to the investor as required by the law.

Dissolution

The dissolution clause discusses what happens if the company ceases to operate. It typically stipulates that investors should receive their initial investment amount along with accrued gains. Companies must stress that investor payouts shouldn't be tied to the physical assets of the company to avoid potential issues.

Key subsections can be identified in a sample investment agreement as follows:

Restrictions on voluntary dissolution: This subsection outlines the conditions under which the company may be voluntarily dissolved, detailing the portion of voting shareholders required to action the dissolution and adherence to the company's statutory documents and applicable law.

Procedures on dissolution: This part lays out the course of action upon dissolution. It specifies the responsible parties for winding up the affairs of the company and highlights the continuity of certain existence aspects for wrap-up necessities.

Dividing up assets when closing: This portion explains how the company's assets will be divided if the business ends, based on the proper laws and the company's legal documents. It also specifies the conditions for refunding the investor if the company shuts down prematurely and notes that physical assets are not part of these repayments.

Restrictions on transfers and permitted transfers

The transfer restrictions portion of an investment agreement sample governs the movement of shares or business interests between parties. The following subsections can detail these restrictions and permissions:

• Business asset transfer
  Here the contract outlines the company's commitment not to sell, transfer, or assign any business assets, opportunities, or interests that are fundamental to the business operation or significantly contribute to the company's value without the investor's prior written consent.
• Restrictions on share transfer
  This subsection stipulates that the investor cannot sell, transfer, or otherwise dispose of any shares or interests unless following the agreement's terms. It further highlights that any breach of these terms will render the transfer null and void.
• Permitted transfers
  Notwithstanding the set restrictions, the agreement makes allowances for certain share transfers. These include the movement of shares to the investor's affiliates, subsidiaries, or trusts, given they agree to adhere to the agreement's stipulations.
• Priority rights
  This part focuses on the right of first refusal. It elaborates that if a shareholder plans to sell their shares, they must first offer these to the company or other shareholders. If declined, the shares can then be sold to a third party under the agreement's conditions.
• Rights to participate and rights of first offer (ROFO)
  These are defined as the investor's rights to participate in qualified financing and the right of first offer. This subsection outlines the conditions under which the investor can weigh their investment during qualified financing and how ROFO functions.

Non-competition and confidentiality

The non-competition and confidentiality parts set the rules for how an investor can deal with possible competitors and handle private information. Usually, investors are not allowed to work for or make money from competing businesses while they are investing, and sometimes even after that time. They are also required to maintain the confidentiality of strategic company information.

Term and termination

This part specifies how long the agreement lasts and the steps to take if the investor or the company wants to end the contract. It may include points like the main shareholder getting the first chance to buy back the investor's shares should they decide to leave.

Governing law and dispute resolution

Every investment agreement contract needs a means to manage potential conflicts. The part of the agreement that talks about solving disagreements usually advises trying mediation or arbitration before expensive and public court trials. Also, it's essential to mention the governing law — the area whose rules will be used to explain and make the agreement happen.

Legal counsel

Considering the complexity of the investment agreement template free, getting legal advice is crucial for all involved parties. A skilled lawyer can ensure that the agreement's terms are fair, follow local laws, and benefit everyone involved.

Limitation of liability and protection against loss

This clause helps manage risk. The limitation of liability clause sets a cap on the amount one party may have to pay the other in case of a breach, while the indemnification clause ensures one party compensates the other for any losses or damages they might suffer due to agreed-upon circumstances.

Severability

A severability clause protects or keeps the whole deal safe, even if a court finds one part of it wrong or not legally okay. It emphasizes that the remaining parts continue to be effective, lending resilience to the investment agreement.

Conclusion

Whether you're an investor or a company representative, it's crucial to understand all these parts, adjust the vocabulary and tone to your company's specifications, and seek professional advice. It's also crucial to review the investment document multiple times for clarity, coherence, and any possible revisions.

Remember, a well-structured, clear, and free investment contract template can be the basis of a successful, conflict-free investment journey.