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Quick Facts — Investment Contract Lawyers

What is Investment Contract Drafting?

An investment contract is a legal document that outlines conditions for providing capital to a business in exchange for financial benefits. It must contain key terms to provide clarity to both the company and investor, such as regarding profit distribution and capital contributions.

After a term sheet has been drafted and due diligence has been completed, an investment contract legally binds both parties to the deal so that it can be finalized.

If you need to draft an investment contract, read the rest of this article to explore key terms to include in the agreement, how to draft it, and how hiring a qualified lawyer can benefit you throughout the investment contract drafting process.

What Information Does an Investment Contract Contain?

An investment contract typically includes the following key terms:

  • Investor rights. This clause specifies what rights or authority investors will have, such as a say in major business decisions or board seats.
  • Company duties. The business will have certain obligations, such as explaining to investors how they will use the capital.
  • Amount. This specifies the exact sum of money the investor will provide in exchange for benefits, such as company securities.
  • Valuation. This outlines the business value that determines the price per share.
  • Ownership. Investors will need clarity about how much of the company the investor owns after providing funds.
  • Exit. If something goes wrong and the agreement falls apart, there must be clarity about how payments will be made and how investors can exit.

What are Tips for Drafting an Investment Contract?

Now that you know the basic terms you should include in an investment contract, there are important steps involved in drafting it.

Align it with the Term Sheet

You should refer to your term sheet so that you can include clauses in your investment contract that match it. This prevents you from including information in the final contract that isn’t approved or can create confusion.

Include Investor Protection Clauses

It’s important to have clauses that will minimize your risk of investor disputes. Depending on the type of investment, some protective clauses include:

  • Anti-dilution clause. This protects investors from lower ownership percentages should it happen that the company issues new shares in future at a more desirable price.
  • Liquidation preference clause. This specifies the order in which investors and company founders are paid if the company goes through liquidation or bankruptcy.
  • Right of first refusal. This gives investors the right to purchase company shares that other shareholders wish to sell, prior to third parties being offered the shares.

Provide Business Transparency

To maintain good relationships with investors, companies must be open and honest. The investment contract should include representations and warranties that provide factual statements about the company’s legal and tax stability.

How you calculate returns and profits that are distributed is also important to clarify in the investment contract, as investors seek answers about these processes.

Consider Additional Fees

There could be fees included, such as management or admin fees, but these need to be reasonable. Review all expenses and disclose them with investors so that there are no unreasonable or hidden costs that can reduce their returns.

Be Wary of Generic Contract Templates

Although it can be tempting to use a generic investment contract template, you should be wary because the agreement needs to be tailored to your specific investment so that there’s no missing information. You also need to align the contract with the relevant regulations and securities laws.

How Does a Lawyer Help You Draft an Investment Contract?

Hiring a lawyer to draft your investment contract gives you peace of mind that it’s clear and transparent, as well as legally sound.

A lawyer will conduct activities such as:

  • Providing a definitions section that makes financial terms accurate throughout the agreement.
  • Writing the agreement so that it’s clear and easy to understand, helping both parties to understand their obligations.
  • Organizing clauses in the agreement so that they’re aligned with the funding process.
  • Explaining investor rights, such as board control, and how they will work.
  • Removing any legal or dense language that can create ambiguity, resulting in disputes.
  • Including non-compete and non-solicitation clauses that prevent investors (who might also be founders) from competing with the business.
  • Ensuring that the entire agreement is aligned with local financial regulations and laws to keep you compliant.

Without a strong legal background, you might not have all the information you need for compiling an in-depth investment contract. A lawyer will be able to help you with their blend of expertise, legal knowledge, and years of experience.

Where to Find a Lawyer for Investment Contract Drafting

If you need to hire a lawyer to draft an investment contract for you, you shouldn’t have to worry about where to find a reputable one. Online legal platforms make the process of finding and hiring a lawyer simple and straightforward.

ContractsCounsel is one of the biggest online legal marketplaces that gives you access to a network of vetted lawyers. All the lawyers on the platform have years of experience in contract drafting and review to assist you.

If you need a lawyer on the platform to draft your investment contract, here are the easy steps to follow:

  1. Go to the ContractsCounsel marketplace.
  2. Post your project for free. Include a few details, such as about your investment, to help you find the most suitable lawyer.
  3. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform who have the experience to help you.
  4. Review the lawyers’ profiles. Take some time to go through the platform’s extensive lawyer data, such as their location, client ratings for previous projects, expertise, and credentials.
  5. Select a lawyer based on their profile information and hire them to draft your investment contract for a flat fee.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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