When starting a new business, entrepreneurs often seek investments from friends and family members. Structuring a proper investment agreement protects both sides in this type of financing arrangement. This article looks at key elements to include in a family investment contract using the key words friends and family investment agreement example doc word. An investment agreement for friends and family financing should clearly outline the investment terms, share distribution, investor rights, and exit strategy. Properly documenting this agreement is crucial to avoiding potential conflicts down the road.
Clearly state investment amount and terms
The investment agreement doc word should clearly state the amount being invested by each friend or family member. It should also detail the investment terms – will it be a one-time lump sum, multiple installments, a loan, equity purchase? Defining this upfront aligns expectations for both sides. Any repayment schedule for loans along with applicable interest rates should be included.
Specify equity share distribution
For friends and family making an equity investment in the business, the contract should define the percentage ownership stake they will receive in exchange. This section should break down the share distribution between the entrepreneur, other investors, partners, and co-founders. The agreement should also address dilution – decreasing ownership stake – if applicable.
Outline investor rights
The agreement should detail any investor rights granted to the contributing friends and family members. Typical rights may include access to financial information, voting power on certain decisions, first offer on future investment rounds. However, you may choose to limit rights to only receiving an annual report. Define rights clearly up front.
Include an exit strategy
Friends and family investors will eventually want to cash out, so having an exit strategy is key. The investment agreement example doc word should cover the process, which may involve buying back equity stakes once the business is profitable or gets acquired. You may also include terms for forced buyouts after a period of time.
A properly structured friends and family investment agreement example doc word clearly defines the financing terms, share distribution, investor rights, and exit strategy. Taking the time to properly document this agreement helps avoid potential conflicts and sets clear expectations.