“With three busy but legally unsavvy directors to sit down, make concentrate and produce decisions, Jane had her work cut out; nevertheless, in setting up the legal framework for our business Jane was fantastic. She gave us plenty of personal attention, time, expertise and patience; never working to her agenda but wanting to ensure we explored different options and constructed the business we envisaged for ourselves and our clients. An incredibly clear and effective communicator, Jane is complete proof that excellence is definitely not the preserve of the big law firms and her wealth of complimentary legal associates and resources is second to none.”
Caroline Snell, Director, Claro Research Ltd
Investing in other people’s businesses and companies can be very rewarding but you need to protect yourself against the pitfalls and be on the look out for a rather too ‘over enthusiastic’ welcome to your pounds and pence…
Some people regularly invest in other people’s businesses. They refer to themselves as ‘business angels’. These people will know exactly what they want for their investment and will expect to have an Investment Agreement in place setting out their rights and obligations to the company and the other shareholders.
If you are not used to investing your money in other people’s businesses then you do need to make sure that you are protected as far as is possible.
How will you invest? There is a difference between investing in a business and lending money to it. You have to decide from the outset what it is that you want to do. Your decision will often depend on your attitude to risk.
The loan – if you lend money to a business then you expect to be repaid usually with interest and this will be the extent of any benefit you will receive. You will also usually ask for security for your loan, such as a debenture over the assets of a company with personal guarantees and personal security from the directors/shareholders. This means that if the company does not repay the loan then you can attempt to get repayment from the director/shareholders personally if the company is unable to pay.
Equity – in this case you are given shares in a company for your cash investment. Unless, or until, you sell your shares you will never recover your investment monies so you can easily see that this is a much riskier form of investment. If, however, the company does well then you also benefit from this as and when you sell your shares. If you are going to take an equity stake in a company, as an investor, then you need to consider the following:
Importantly never part with your investment monies until you have all your protections in place. Often you can be put under a lot of pressure to pay your investment monies to the company with the promise that you will get your protections later on. Never trust this approach. Always be sceptical. If it is a legitimate business the company will respect your desire to put your protections in place first and foremost.