Jump to Section
What is an Investment Contract?
An investment contract is a legal document between two parties where one party invests money with the internet of receiving a return. Investment contracts are regulated by The Securities Act of 1933. In order for a contract to be considered valid to this category it must contain the following elements which are laid out by the Howey test:
- An investment of money
- A common enterprise
- Profit expectation(s)
- Derived from the efforts of others
Although the Howey Test it is not the sole testing method available it is the most common resource relied on to confirm that an investment contract meets the criteria of a security.
Types of Investment Contracts
There are multiple types of investment contracts but the ones most frequently drafted consist of the following:
- Stock Purchase Agreement – This type of contract is one of the simplest but involves a ton of documentation since it is for investments that are not publicly traded.
- Non-statutory Stock Option Agreement – Sometimes referred to as nonqualified stock options, this type of contract is opted for when investments are sought by investors or workers within a company. No formal requirements exist for this choice.
- Statutory Stock Option Agreement – Known as ‘incentive’ or ‘qualified’ stock options, this type of contract is under the regulation of the Internal Revenue’s Code. Although there are strict requirements for this option the tax benefits make it worthy.
- Convertible Debt Agreement – This type of contract is known for its creativity of allowing an investor to loan money to a company and be repaid later or gain ownership interest. Three specific types of convertible agreements are listed here:
- Convertible Note – A convertible note is a short-term debt that can be converted into equity in the issuing company. In this case, an investor loans money in exchange for shares.
- Convertible Promissory Note – This note converts debt to equity at a designated point in time, depending on the agreement.
- SAFE Note – A SAFE Note is a convertible security that acts reflective of an option by allowing an investor to purchase shares at a future price. This is not an actual debt and does not accrue interest.
- Restricted Stock Agreement – A restricted stock contract is one that does not make it feasible for an investor to gain ownership interest. Investors of this nature are expected to dedicate time and efforts to maintain existing interest.
- Deferred Compensation – While this is not an outright type of investment, a contract of this category is seen as investing by employees because ownership or pay increases are anticipated for the future.
- Royalty, Commission, or Percent of Revenue – This type of contract is more for individuals who do not wish to have ownership of the company itself but would rather invest in its profits or products.
To view examples and detailed descriptions of investment contract types read this article .
See Investment Contract Pricing by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Key Terms in an Investment Contract
While investment contracts can be very broad and constitute a unique variety of terms and phrases, there are several commonalities listed below.
- Shareholder – A party having a portion of ownership in a company in the form of shares.
- Investor – A party who invests in a company by putting forth money or other financial resources. Investors give to the company with expectations of receiving back.
- Investment – Something of financial value given for the purpose of reaping benefits thereafter.
- Recitals – Recitals are the specific details of the applicable agreement, including investments intended to be made.
- Agreements – Agreements listed in the contract dictate all the terms and conditions agreed upon. This is the lengthiest portion.
- Milestones – Milestones are parts of the investment process broken down into smaller areas and timeframes. One milestone must be achieved to get to the next.
- Warranties – Warranties are representations made by a company to an investor that state truths and facts pertaining to the investment. If it is discovered the warranties were misleading or false then an investor can take action based on these.
- Restrictions – Restrictions written in an investment contract will describe the ways in which the investor is limited as to their ownership, shares, or other role in the company.
- Confidentiality – The confidential assertions made in the contract will mandate that the agreeable parties keep information related to the investment private.
Read this article to learn more about key terms that are often placed in investment contracts.
Return on Investment (ROI)
It is likely an investment contract exists if a party invests money into a business without having a direct role in the processes carried out. This party becomes known as an investor and when an agreement is entered into regarding an enterprise a return on investment (ROI) is expected.
It is an absolute necessity that you notate in the contract when the ROI will be disbursed. This will prevent you from having to wonder when the right time is to reach out to about a ROI and will also allow you to inquire about it at a reasonable time. There is more than one formula used to calculate ROI so it is wise to disclose the version that will be used for the exact agreement being focused on.
The most likely formulas to be used are shown here:
- ROI = Net Income / Cost of Investment
- ROI = Investment Gain / Investment Base
A good way to view ROI and determine the best way to make a calculation is to think of the applicable benefit divided by the cost. An investor should be curious of businesses ROI because it signifies the value of the investment being decided on.
Here is an article detailing ROI.
Image via Pexels by MayoFi
How To Write an Investment Contract
Professionally and diligently writing an investment contract is highly recommended due to the legal stipulations it creates. Writing an investment contract can be simplified by examining related samples and including all the content listed below:
- The names and addresses of interested parties
- The general investment structure
- Purpose of the investment
- Effective date agreed upon
- Signatures by both/all parties
It is important to clearly state in the contract what you as the investor will be providing and in what form as well as when the investment will be activated. Whether investments will be transferred in the form of cash, check, assets, or wire transactions should be asserted. It is vital to ensure inclusion of all the specifics in the contract no matter how trivial they may seem so that there is no confusion or disputes that arise later.
It would be useful to follow these steps when writing your investment contract:
Step 1: Designate the first section to name the parties involved and link them to the proper titles.
Step 2: The legal terms such as ‘whereas’ and ‘therefore’ should be listed when describing the investment and claiming that the parties agree of the material that follows.
Step 3: The body of the agreement should contain headings and sections reiterating prior discussions of how the investment will be set up and put into action.
Step 4: Once the basics are incorporated into the contract, the terms of payment should be written.
Step 5: Milestones that apply should be spelled out with their due dates mentioned.
Step 6: The start, duration, and end of the agreement should all be touched on along with unplanned termination aspects.
Step 7: Company points of contact, legal jurisdiction, and signatures serve as appropriate conclusive sections.
Here is an investment contract example .
Getting Help With an Investment Contract
If you are thinking of writing an investment contract and need assistance, fundraising lawyers and/or securities lawyers are well suited contacts.
Here is an article that provides insight as to the competency of these attorneys for investment matters.






Meet some of our Investment Contract Lawyers
Michael K.
A business-oriented, proactive, and problem-solving corporate lawyer with in-house counsel experience, ensuring the legality of commercial transactions and contracts. Michael is adept in reviewing, drafting, negotiating, and generally overseeing policies, procedures, handbooks, corporate documents, and more importantly, contracts. He has a proven track record of helping lead domestic and international companies by ensuring they are functioning in complete compliance with local and international rules and regulations.
Daniel R.
NY Admitted Lawyer 20+ years of experience. Focused on Startups , Entrepreneurs, Entertainers, Producers, Athletes and SMB Companies. I have been a part of numerous startups as Founder, CEO, General Counsel and Deal Executive. I have been through the full life cycle from boot strap to seed investors to large funds-public companies to successful exit. Let me use my experiences help you as you grow your business through these various stages. We saw a market for an on-line platform dedicated to Virtual General Counsel Services to Start Ups and Private Companies.
Richard N.
I have been practicing law for 35 years. In addition to my law degree, I hold an MBA. I've created six companies, currently act as outside counsel to another 12, and have been an advisor to more than 500 startups and entrepreneurs.
Justin C.
Justin Camper is a small business and trademark attorney, entrepreneur, public speaker, and writer. Justin has been practicing law close to 5 years and has done various areas of law from criminal work as a Prosecutor, to business and civil litigation at private law firms.
George L.
I am a corporate attorney with offices in Rock Hill, SC, and Lavonia, GA. My practice is focused on contracts, tax, and asset protection planning. I act as a fractional outside general counsel to over 20 businesses in 6 countries. When not practicing law, I can usually be found training my bird dogs.
August 16, 2022
Matt M.
I love to learn, and I love solving problems. That's why I became a lawyer, and learned to solve legal problems for individuals and businesses and help them fix things when there's a snag. Touch base if you think I could have something to offer for you or your company. Experienced, results-oriented legal professional whose background and education have established him as a valuable resource in areas of corporate law, franchising, litigation, compliance, mortgages and banking, and more. Practice Areas Include: Corporate law, Franchising, Litigation, real estate, corporate law, civil disputes, insurance representation, corporate counseling, dispute resolution, risk management, regulatory counsel, compliance. Experience involves sophisticated as well as routine corporate structuring and transactions, simple and complex litigation, and written and oral advocacy such as depositions, mediated settlement conferences, trials, appeals, written pleadings and discovery, and case strategy and analysis. Experience managing and litigating disputes between parties and negotiating settlements across the spectrum of civil litigation, including probative discovery, successful motions practice, legal research and writing, appellate practice, and legal consultation to individuals and business entities. Further experience includes digesting and monitoring updates to the legal landscape to advise clients or departments and successfully adapt policies and procedures to assure compliance with applicable laws and regulations as well as to manage risk effectively. For those needing a skilled commercial or corporate lawyer, or for individuals whose rights need persuasive advocacy, I am a valuable resource. Representative work also has involved success on the appellate level, as in Baker Construction Company, Inc. v. City of Burlington and Hawthorne, LLC, North Carolina COA09-13.
August 14, 2022
Madeline P.
I am the CEO and attorney at my law firm that I started in June 2020 (as other businesses were shuttering due to Covid-19). I am currently seeking contract work to supplement my case load as I recently finalized numerous family law cases within a short timeframe.
Find the best lawyer for your project
Browse Lawyers NowFinancial lawyers by top cities
- Austin Financial Lawyers
- Boston Financial Lawyers
- Chicago Financial Lawyers
- Dallas Financial Lawyers
- Denver Financial Lawyers
- Houston Financial Lawyers
- Los Angeles Financial Lawyers
- New York Financial Lawyers
- Phoenix Financial Lawyers
- San Diego Financial Lawyers
- Tampa Financial Lawyers
Investment Contract lawyers by city
- Austin Investment Contract Lawyers
- Boston Investment Contract Lawyers
- Chicago Investment Contract Lawyers
- Dallas Investment Contract Lawyers
- Denver Investment Contract Lawyers
- Houston Investment Contract Lawyers
- Los Angeles Investment Contract Lawyers
- New York Investment Contract Lawyers
- Phoenix Investment Contract Lawyers
- San Diego Investment Contract Lawyers
- Tampa Investment Contract Lawyers
ContractsCounsel User
Epoint
Location: Delaware
Turnaround: Less than a week
Service: Drafting
Doc Type: Investment Contract
Number of Bids: 6
Bid Range: $1200 - $4500
ContractsCounsel User
Review Term Sheet for investment
Location: Massachusetts
Turnaround: Over a week
Service: Contract Review
Doc Type: Investment Contract
Page Count: 3
Number of Bids: 5
Bid Range: $450 - $800
related contracts
- Accredited Investor Questionnaire
- Adverse Action Notice
- Bridge Loan
- Bridge Loan Contract
- Collateral Assignment
- Commercial Loan
- Convertible Bonds
- Convertible Note
- Convertible Preferred Stock
- Cumulative Preferred Stock
other helpful articles
- How much does it cost to draft a contract?
- Do Contract Lawyers Use Templates?
- How do Contract Lawyers charge?
- Business Contract Lawyers: How Can They Help?
- What to look for when hiring a lawyer