Investors are individuals, groups, or companies that provide capital or funding for startups/small businesses or even big companies. Their aim is to earn monetary returns in the future. Investors can also offer resources and advice to business owners for the sake of promoting growth and aiding expansion. Notable among them are the angel and venture capitalist investors.
When looking to inject their money into an idea or venture, investors try to ensure that the beneficiary has great potential, and that everything is in order as regards documentation, legal matters, and so other relevant matters.
Many investors know that investing at the initial stage of a business has its merits. Such move can yield high earnings if the business records significant success. However, investing in a business poses some risks. This is why investors tend to exercise great caution when dealing with entrepreneurs.
As a business owner, you need be prepared to fulfil all the requirements of investors. Many investors seek to establish equity positions in companies that have the tendency to attain rapid growth. Some prefer to work closely with such companies to ensure success. Legal matters are also looked into. Of course, this is in their best interests.
Investors tend to exercise utmost care in adhering to relevant laws that apply to the negotiations and financing process. They would want to make the contract as flawless as possible because it will contain terms that will guide their deals with the business owners as time passes.
The Legal Review
Investors hire investment lawyers to help them through the process of screening potential beneficiary-companies. They seek to uncover potential liabilities and ensure that the business is as healthy as it seems.
These lawyers give them all the advice they need before a progressive decision is reached. Everything related to the formation and running of the company will be checked including.
Business owners should be prepare for the screening by having the necessary experts and legal practitioners on deck. Apart from the documents that will be checked, they need to ensure that top notch business planning experts like Pro Business Plans are hired to help in formulating suitable business plans that will be presented to investors. You should have the authorization to seek investors.
Before investing in a company, investors check some legal documents to ensure that there are no red flags. They are listed below.
- Charter document (Articles or Certificate of Incorporation)
- Organizational Board Resolutions
- Tax Identification number
- Stock vesting agreements with founders
- Stock ledger and capitalization table
- Stock option plan for employees and directors
- Federal and state securities law filings for any previously issued stock or options
- Indemnification agreement for directors
- Confidentiality and Invention Assignment Agreements for all employees and contractors
Now that you have an idea about how investors screen companies for legal review, you need to start making preparations as soon as possible. Business planning experts can guide you through the process of putting things in order.