As far as there is a form of agreement, terms and conditions are necessary for guidance and should be included in all agreements. The terms and conditions of an investment agreement specifically refer to the conditions applicable to that agreement. They are very important, and all agreements must contain one.
This article explains what terms and conditions are, and why it is important. It also answers other questions that you might have surrounding this topic.
Are the terms and conditions of an investment agreement necessary?
Terms and conditions are legal agreements between two parties. This is usually a service provider and a service consumer. However, in the case of investment, it is mostly between an investor and a business receiving the investment. It is absolutely necessary and must be as a legal form to ensure all parties hold up the end of their bargain. Without terms and conditions, it would be easy to back out or abuse the contract, therefore leaving one of the parties in losses.
Why is it important to have terms and conditions in an investment agreement?
It is important to have terms and conditions in your investment contract for the sake of accountability and effectiveness. As an investor, you wouldn’t want to throw money into a business that would not deliver on its promise and likely squander your money. On the other hand, as a business owner, you should prefer investors that hold up their end in providing finance and other resources as agreed on.
The terms and conditions of the investment agreement ensure that no party exploits the other. In the case of a breach of contract, we can take legal action. However, terms and conditions are not generally seen as legally binding although they hold such power.
How do I create terms and conditions in an investment agreement?
Professional legal representatives should draft investment agreements in order to trash out both the legal and performance requirements of the investment. If you are not experienced in drafting such documents, you bear a great deal of risk by trying it out by yourself. This applies to investors and business owners.
However, some terms are common in all investment agreements. They are:
1. Letter of intent:
The letter of intent communicates your intention as an investor to invest in your business. It also includes how much he intends to invest and an equivalent share amount demand. When coming from you as a startup owner, it is referred to as a letter of proposal, which details your business goals and why the investor should take a chance with you.
2. Term Sheet:
The term sheet contains all the agreed terms and conditions of the investment. It is developed by the investor and you (startup owner). Although they are not necessarily legally binding, they guide the contract and hold each party to their word.
- Shareholder’s Agreement:
This is an agreement document between all the shareholders (owners) of the company. It specifies details like voting power, shares quantity and type, and other important details.
What are the necessary terms and conditions of an investment agreement?
The terms and conditions of an investment agreement depend on the nature of the business, and the agreement between the two parties. There is no definite list that works for all, which is why we recommend you contact a professional legal representative.
It’s absolutely necessary you include the terms and conditions of an investment agreement, before signing the contract. It guides both parties and holds each to their words. It also provides security and peace of mind to the two sides since its legally binding.