Small Business Investing

Investing in a Small Business

Why is it important to have proper documentation and legal agreement when I invest in a small business?

Investors often conclude a private deal with family and friends with nothing more than a handshake, exposing themselves to many potential risks. It is best to pay for the services of an attorney, and perhaps even share the costs of all legal expenses related to the transaction with your investment partner. You should especially attend to such details as what the corporate structure will be, dilution clauses, capital calls, board voting rules, share buyback rules, share valuation rules, liquidation, payment of earnings, cost and expense control, and legal jurisdiction. You should also ensure the purchase agreement is balanced, and does not favor the buyer or the seller. These and many other considerations must be of high priority to protect both buyer and seller, so you should seek the guidance of a lawyer who specializes in small company transactions.


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