What is an Investment Contract?
An investment contract is a legal document wherein one party invests money with the expectation to receive a return of investment (ROI). Whether you are planning to invest in stocks, mutual funds, bonds, or real estate, it is vital to have a contract on hand. A business agreement or contract will protect each party from any arrived agreement.
How to Write an Investment Contract
According to Statistica.com, around 55% of adults in the United States invested in the stock market from 1999 to 2018. Investing is a great way to grow your money; however, you must pick wisely on where to invest your funds. According to Will Graham's " A Quantitative Analysis of Victims of Investment Crime" older males, many of whom are retired, are victims of investment fraud. This is the reason why everyone should be aware of how investing works and the role of contract in negotiations like this. The guidelines below will help you in writing your stock or business investment agreement or contract. it would help you protect yourself from the investment fraudulence.
1. Determine the Parties Involve
Identifying the parties involved is vital in every investment agreement, whether it is a product investment contract or a real estate investment contract. The details of each party should be mentioned in the contract to avoid miscommunication and misunderstanding. The details include the name, company name, contact information, address, etc. of the investor and the investee.
2. Apply Clarity and Conciseness
Legal documents such as an affidavit, memorandum, and contract are technical papers, therefore, it should be clear and concise all the time. An investment contract is not a creative piece that uses flowery words to entice the reader; rather, it is a legal agreement that states facts. Being clear and concise enables the reader to read directly the purpose of the contract and it also prevents miscommunication.
3. Include Payment Method
Even though you are investing in a small business, a payment method and a payment schedule should still be included in the contract. By having a payment method, you can easily decipher how the client should pay what he/she has invested— whether it is on cash, credit/debit, check, or installments.
4. Terms and Conditions
In writing your investment contract, never forget to put the terms and conditions of each party. A good simple contract should be fair to both parties. Your contract should not be one-sided, therefore, both the investor and the investee can benefit. Apart from the terms and conditions, also put the "whereas" and "therefore" statements.
5. Ask for Legal Advice
An investment management agreement or contract is a legally binding document, therefore, it is enforceable by law. It is important to ask for some legal advice whenever you are writing a contract. Having it proofread by an attorney will make your contract better and stronger.
The signature signifies that you agreed to the terms and conditions written. Gathering the signatures of everyone who is part of the transaction is the final step of your contract writing. A contract signed is an agreement sealed. Although the signature is located at the bottom part, it is still one of the most important parts of a contract.
How to Ensure the Investment is Protected?
Investors may be afraid for the ROIs often, but don’t panic it’s normal. Nobody expects loss right? You can ensure them that their capital is well protected by following certain steps like:
- Keep the investor up to date with daily activities and ups and downs even before they ask you. It is not your fault they take part in it or not. Doing so, you would not be at fault for the poor communicator.
- Obtaining affirmative voting rights to act upon specific “reserved matters".
- Creating and forwarding reports on periodic activities, financial impacts, planning, etc.
- Providing the investor the right to inspect business operations and the right to conduct an audit.
- Investors might no be sure to invest in stocks or security many times due to their confusion. You can make them feel comfortable providing them the first right to purchase the exiting shareholder’s shares. Also by providing them the right to the first refusal.
What are the Basic Terms of Investment Contracts?
Obviously, when people invest they expect to make a profit. A third party performs all the responsibility to gain profit. Three types of investments are already in the market.
- Ownership Investments- It is an investment in stocks, Precious objects and collectibles, real estate, and business.
- Lending Investments- It is an investment in bonds and your savings in the savings account.
- Cash Equivalents- This is the investment that is valuable no less than cash. These are easily convertible to cash at any time.
But not all financing is an investment. For example, purchases of some specific real estate fields are not considered fit in an investment category. To qualify as an investment, the addition of certain terms and information in your contract is essential like:
- As an investment contract a registration, reporting, and disclosure requirements as laid out by the SEC is important.
- Basic details of the parties involved (name, occupation, etc.)
- Address and contact details of the involved parties
- Investment purpose
- Basic investment structure
- Date of agreement
- Signature of the parties
- The amount the investor is willing to give
- The form or mode of investment
- When the investment would be made
Thus, do not forget to add these particulars to your agreement to make it effective. And if you are too busy to make one, impress your financers with our unique set of investors contract templates.