INTRODUCTION
Owner and Investor share relationship of numbers. In other words, the relationship between the Owner of a Business and the Investor is solely based on profit and losses. Moreover, in most the cases, the future of the said relationship is based upon the profit and loss of any business in which the owner has invested some amount as “Investment”. Thus, to ascertain the rights and obligations of the Owner and Investor, an Investment Agreement is formulated between them because, at a later stage, no such dispute may arise, and if so, their rights shall be protected. In this article, our commercial contract lawyer will tell the readers about tips regarding the drafting of Agreement between the Owner and Investor. Still, instead of directly moving to the drafting part, a basic understanding of the Investment Agreement and its importance is mentioned below.
What is the meaning of Agreement between Owner and Investor?
Our Commercial Contract Lawyer states that:
An investment Agreement is an agreement that is formulated between the Business Owner and Investor to ascertain the terms of payment and distribution of profits or return on such amount which is invested by the Investor. Thus, no such specific definition regarding an Agreement between Owner and an Investor has been defined anywhere. Still, it is considered a binding obligation between them.
What is the importance of an Investment Agreement?
An agreement between Owner and Investor plays an essential role in defining the rights and obligations of each party. Suppose someone is investing some amount of money as (Investment) into another business. In that case, such an Investor need a return and no ambiguity for the conditions he wants to impose upon the Business Owner. Therefore, on the other hand same thing applies to the Business Owner that how much stake or decision-making power is appropriate to allocate with the Investor so that neither party shall not suffer loss or damage.
Whether Start Ups require an Agreement between Owner and Investor?
Our Small Business Contract Lawyers suggest that:
It is essential for the Startups to opt for Investment Agreement if they are raising funds for their Business. The need for an Investment Agreement specifically for Start Ups is just as the growth company always depends upon the decision taken at the prior stage and if the wrong decision or steps are taken haphazardly without having a vision for the future consequences, then the said star up will run into losses. We have mentioned a situation herein below from the case our breach of contract lawyer has dealt with:
Example:
\’A\’ was a startup business formed in 2019 and dealing in Interior Design. In 2020 \’A\’ received an Investment from \’B\’ (Investor) of AED 200000 based on profit sharing earned by \’A\’ at the end of every financial year. A basic agreement that only contains standard terms were formulated by \’A\’ with \’B\’ regarding the Investment. Unfortunately, in 2021 dispute arose between \’A\’ and \’B\’ regarding the distribution of profits. Due to not having a proper Investment Agreement, \’A\’ lost the dispute and ended up paying a hefty amount to \’B.\’
Advice:
Our Small Business Contract Lawyers suggest that:
Weak and ambiguous Agreements are very lethal because the terms of such agreements are basic in nature and cannot deal with future issues which may arise. Thus, everyone needs to opt for a well-drafted and trusted Agreement that may protect them from future problems.
Would you require an Investment Agreement despite having friendly relations with the Investor or Business Owner?
Our breach of contract lawyer recommends that:
To opt for an Investment Agreement despite the parties having friendly relations with each other because, in the end, the profit of the business matters. In case a dispute arises between the parties for any reason related or unrelated to the Business in such a situation, the Investment Agreement will play a vital role in protecting the parties\’ interests because in the end, any party will also create an issue with the Investment or Business. Therefore, it is advisable to formulate an Investment Agreement despite the parties\’ friendly relations.
What is the difference between a Shareholder Agreement and an Investment Agreement?
Generally, most people got confused between a Shareholders Agreement and Investment Agreement as both things are similar in nature but have a slightest difference between them which is explained below by our commercial contact lawyer:
- Investment Agreement
The main purpose of this Agreement is to define the Investment made by the Investor and the procedure for the distribution of profits amongst Investor (s) and Business Owner(s).
- Shareholder Agreement
This Agreement specifies the percentage of shares is owned by the New Shareholder(s) if a particular amount is invested into a business. Moreover, the rights regarding decision-making and the operation of Business are being decided between the parties.
Difference:
Our commercial contract lawyer states the fundamental difference between the agreements mentioned above is that in an Investment Agreement, an Investor is only interested in the profit of the Business and the amount invested by the Investor is recorded in such Agreement. In the Shareholder Agreement, the Investor becomes the Shareholder in the Business and owes all the rights and responsibilities the same as the other shareholders.
After discussing the relevant questions relating to the Agreement between Owner and Investor with our commercial contract lawyer, here are the points mentioned which are helpful in Drafting of Investment Agreement.
ESSENTIALS FOR DRAFTING AGREEMENT BETWEEN OWNER AND INVESTOR
Our Small Business Contract lawyers tell about the essentials required in drafting an Investment Agreement.
- PURPOSE
The purpose behind the Agreement between Owner and Investor shall be mentioned after the details of the parties. This clause defines the scope and intention of parties while entering the contract.
- TERMS OF INVESTMENT
In this clause terms regarding Investment shall be mentioned in the form mentioned below:
- INVESTMENT AMOUNT
The amount of Investment shall be mentioned clearly in numbers and words. Moreover, it is important to mention here that Investment amount shall be correctly mentioned to ensure that there is any Investment Plan for future Investments.
- DURATION OF INVESTMENT
This clause shall signify the duration of the Investment Agreement, or the Duration of Investments made by the Investor(s) into a Business. This clause will help both the parties in clearing their terms of Investment.
- MANNER OF PAYMENT
This clause will signify how Investment is to be made by the Investor in the Business. Likewise, the Investor wants to make the investment quarterly or per project. The said plan is to mention understanding the nature of investments.
- CONSIDERATION FOR INVESTMENT
This Clause in the Agreement between Investor and Owner will identify the procedure of return on the Investment and also allocate the rights to the Investor regarding percentage in profit.
- RIGHTS OF THE INVESTOR
This clause will identify the rights of the Investor (s) regarding the Investment made by him. Moreover, this clause also deals with protecting the Investment or checking the books of the company.
- RIGHTS OF THE OWNER
This clause will determine the business owner\’s rights, which means protecting the power in decision-making and other rights related to the business\’s ownership.
- NON-PERFORMANCE CLAUSE
Likewise, some conditions are specifically to be met by the business owner within a stipulated time-bound manner. Due to non-performance, such terms have become infructuous then the reason of termination will be non-performance. The vice-versa applies to the Investor(s).
- TERMINATION CLAUSE
This clause will identify the reasons, conditions, and consequences on and after termination. The ground for termination of the Agreement shall be mentioned to give clear understanding in case a dispute arises.
- EXIT STRATEGY
This clause will determine the exit strategy for either party to the contract. It will also ensure that the amount invested by the Investor shall be returned to him when there is exit by either party.
- SIGNATORIES
In Agreement between the owner and Investor, the clause will include the signatory’s column wherein both the parties to the Agreement will sign to ensure that both parties are aware of the terms and conditions as listed in the Agreement.
WHAT ARE THE CONSEQUENCES IF AN AGREEMENT BETWEEN INVESTOR AND OWNER IS NOT PROPERLY DRAFTED?
Our Breach of Contract Lawyer suggest that:
If Investment Agreement is not properly drafted, it may cause harm to the extent that Investor (s) may lose all the money he invested into the Business, or on the other side, the owner may also lose control over their Business. Moreover, there are maximum chances that Litigation may arise between the parties and will become cost and time-consuming.
HOW DOES THE LEGAL DOCUMENTS DRAFTING SERVICE IS IMPORTANT?
Legal Documents Drafting Service is considered one of the most important services because the contracting parties\’ future depends upon the draftsmen skills. So, it is significant to have good drafting skills imbibed with the foreseeability of analyzing disputes and risks for the client.
HOW CAN NOUR ATTORNEYS LAW FIRM HELP YOU?
Our law firm comprises one of the best commercial contract lawyers with extensive experience in legal document drafting service and legal contract review. Our law firm team of lawyers and legal consultants are highly qualified and trained in drafting and reviewing contracts and agreements.
Our team of small business contract lawyers is specially formed to deal with the legal document drafting service and legal contract review, especially for startups. Moreover, our lawyers are well experienced in protecting the interest of both, whether they are Investors or business owners so that if any dispute arises in the future, no such chance is left, which can hamper our client\’s interest.
