What Legal Documents are required to invest into a company??

[MarketingGuy]

Hi all,

I am a potential first time investor into an existing business. The business has 1 store and with my investment a second store can open.

There are currently 3 investors in the existing business and with my 20k investment I will become the 4th. They have offered 20% share in this company.

As this is my first time doing this I would like to know what legal documentation I need to arrange to protect my investment in this business?

What basic things need to go into this contract?
What does this cost to do?
How long do they take to create and sign to make legal?

Thanks for your help,
Wade

 

[moduslegal]

The only protection you will realistically be able to get is a Shareholders Agreement. These are fairly standardised, to the extent that although all solicitors have their own version, they tend to contain pretty much the same things.

They will tend to contain clauses that, for example, prevent any further shares being issued without your consent (so diluting your shareholding), spending large sums of money, selling part of the business etc

Personally, I hate them, because they never really deal with all potential problems and because once signed they tend to be ignored, so that by the time 5 years have passed and everyone has fallen out with each other, they no longer achieve what was originally intended.

However, they are your best method of protection against being shafted - get one properly drawn up by a solicitor and you at least stand a chance in court if things go wrong.

 

[MarketingGuy]

Thanks for the info... I will look into the shareholders agreement