Investors Agreement Template and Easy Tips

Be efficient with your investment relationships by using investors agreement templates, which can be tailored to your needs.

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What is an investors agreement template?

Investors agreements are any form of the legal contract that is entered into by an investor, and someone/a company that they are investing in/have a financial interest in. Generally, this financial interest is in the form of shares. This agreement helps protect all parties involved, and lays out the expectations for return on investment (ROA). These agreements are common, and there is value in creating a template that can be used in all critical situations, for maximum efficiency. 

What is the benefit of using an investors contract template?

With any financial agreement, there will always be some level of risk for all parties involved. By utilizing an investor agreement template, a lot of the risk can be mitigated, and parties can clearly understand all aspects of the investment. This also helps ensure that everyone involved is clear on their responsibilities and rights, to avoid confusion later on, e.g. when trying to take back an investment before an agreed-upon timeframe. 

A template for these agreements is to make this support easy to access. All parties should work to protect themselves, and a ready-made template offers this security, in an easy-to-access format. This helps to provide a foundation to base your agreement upon, which can help to ensure that no important legal requirements are left out. The templates should be easy to input the correct information into, allowing for the development of a smoother investment. 

When should an investors agreement template be used?

There can be some questions and potential issues when it comes to investing and seeking shareholders, if the terms of the financial agreement are not clearly stipulated. Anyone involved in investing or seeking investors should use an investors agreement template to lay out the terms of the investment:

  • When someone is beginning the process of investing in a business, or a business owner is looking for shareholders
  • All parties should protect themselves from any adverse outcomes, avoid losing the investment, and ensure that it will not cost 
  • When there is a dispute with an existing investor agreement that needs to be resolved

If any potential discrepancies or concerns arise, the investors agreement template can be referred back to to understand the agreed-upon outcomes. This can help to save time and expensive lawyer fees. Suppose there is a discrepancy with an existing investment that was not created with an appropriate investors agreement. In that case, a new one can be made to resolve issues and prevent any future concerns. 

These templates are designed to offer protection to all parties involved in an investment. This way, everyone benefits from developing such a document when an investment is being finalized.

Different types of investors agreements

The use of investors agreement samples spans a wide range of industries and fields, so it's crucial to find a template catered to the exact needs of the agreement. Fortunately, there are many different types of templates available, which provide a solid foundation that can be edited as needed:

Stock Purchase 

When a business is looking for shareholders, it will enter a stock purchase agreement with an investor/investors. The investing party will offer their money in exchange for shares in the business. Often there will be conditions associated with the stocks that prevent the purchaser from selling them straight away. This prevents the investor from artificially inflating or decreasing the value of the stock, especially if they have bought a large percentage of the company. 

Stock Option 

Investors want to purchase stock options, allowing them to buy stocks at a fixed price by an agreed-upon date in the future. With options, the investor is not required to purchase the stocks, and they can choose to sell the options. These can be qualified or non-qualified options. For example, investors may buy stock options with a period attached (this can vary, but is usually 10 years). Within that time frame, the investor can wait to see if the value of the stocks increases to more than what they paid for the options. They can then choose to purchase the stocks at the initial agreed-upon price, which is now lower than the market value. If the investor does not exercise the options before the expiration date, they can either purchase the stocks or let the options expire. 

Convertible Debt 

Investors offer money to a business in the form of a short-term loan. The investor and the recipient can agree that instead of paying back the loan in cash, it can be paid back in equity/stakes in the business. There is value in this form of an agreement if the investor believes that the value of the company's shares will increase, so they eventually end up with more excellent value than the original debt. 

Restricted Stock 

Investors may be offering funds but also time and resources to a company. In return, the company provides them with shares, but only after the conditions of the agreement have been met (e.g. the time and resources have been provided). If the investor fails to provide this support, they cannot receive the stocks. This can be offered to employees as a reason to remain within the company - e.g. if they are employed for more than a certain period, they may be eligible to gain access to these restricted stocks, which become unrestricted at the expiration of that timeframe. 

Deferred Compensation

This is most commonly used between an employer and employees. A percentage of the employee's income is withheld until later for a range of benefits (usually lower tax). Examples of this include a pension, bonus, or stock options for employees. This is slightly different from the other investor agreements as the employee will not always receive ownership rights. This is also somewhat different from restricted stock as this does not occur after a certain threshold. The percentage of the income is withheld from the beginning of employment, increasing to more significant amounts the longer the employee remains with the company. 

What does an investors agreement template contain?

The content of any investors agreement is tailored to the specific investment and will differ depending on what type of investor agreement is taking place. They may also differ depending on the industry the business is in. However, some basic details should be part of any standard investment contract template:

but should always contain the following basic details:

  • Date of the agreement
  • Name and address of the investor/investing company
  • Name and address of the company that is being invested in
  • Signatures from all parties
  • Details of the investment
  • These details will differ slightly depending on the type of agreement entered into. However, for most agreements, this should include the financial amount being invested (as well as any other conditions of the investment such as labor) and the number of shares received in compensation.
  • Date the investment will be transferred
  • It should also be specified whether or not the investment is a lump payment or if there are recurring payments
  • Minimum investment period/Return on investment (ROI) period
  • Non-competition clause

Although this is not mandatory (and often not required), some businesses request that their investor not invest in their competition for the duration of their investment relationship.

Seeking help to write an investors agreement

Any form of contract should be treated with importance, and investor agreements are no different. Generic templates from the internet serve as an excellent starting point but should not be used without editing. It is strongly recommended that businesses and investors also seek the support of a lawyer to review the contract to ensure it works for both parties. Several organizations specialize in this form of contract law, providing informed support for everyone involved. Templates allow you to include all necessary points, but a lawyer will ensure that it has been correctly tailored to meet your specific situation. This can also help prevent costly litigation in the future, if it was not completed correctly.