Planning to Invest in a Business? Make sure you discuss these Terms

As a firm with a focus on developing Small Medium Enterprises (SME’s), one area which is a large hurdle for SME growth is funding. One option for SME funding is investors. From our experience, both investor and company would usually be concerned with amount of funds; and repayment period. We wish to highlight that there are several other terms which as equally important. The lists below are general and would vary depending on the nature of the business.

1. Bad Publicity

What if the Company / Investor are associated with a cause / issue / political agenda that is against what the other party stands for? Example – What if the company refuses to serve a particular group of people? Can the Investor withdraw his Investment if he doesn’t want to be associated with that Company anymore?

2. Purpose of the Investment

Is the investment for the Company? Is the investment for a particular venture the Company is undertaking? What if the Company decide to change its business before the end of the Investment period? The purpose of the investment not only makes things clear for all but could potentially avoid criminal elements (Money Laundering etc).

3. Extension of Time

Would the investor agree to an extension of time to make repayment? What are the circumstances that would allow an extension of time?

4. Participation of Investor

Can an Investor have a say in the running of the Company? Can an Investor have a say if repayment is through profit sharing? Can an Investor have a say if the actions of the Company would result in a loss?

5. Early Exit / Early Settlement

Can the Investor request repayment before the agreed time? Can the Company settle the investment before the agreed period? What then about the agreed profits?

6. Method of Dispute Resolution

Parties seldom give this a though as they will always expect things to go without any dispute. Having an agreed and solid dispute resolution clause could not only give clarity to parties but could also save the working relationship (especially if parties elect Mediation (more of that in another post)).