When dealing with investors and looking for investment for your business or your next big idea, the following practical tips can help you to avoid legal pitfalls and to steer clear of any long-term legal problems:-
1. Ensure you’re making the right deal
You’ll already know your business inside out, but you need to think carefully about how much investment your business will need and how what your exit strategy is going to be.
2. Focus on the detail in your legal agreements
Once you have a great deal in place verbally, ensure it’s agreed in writing, ideally with commercial legal advice, for example in respect of a shareholders’ agreement or other binding legal agreement that will govern the deal.
3. Consider if there needs to be security over the investment
With certain investments, a loan may be part of the deal. If so, a security may need to be provided by the company in respect of relevant assets or perhaps by shareholders over their shares. Business owners and entrepreneurs should seek to establish at an early stage whether such security is going to be required to prevent further legal issues in future.
4. Check your intellectual property rights
Intellectual property rights (IP rights or ‘IPR’) are crucial for many businesses, particularly those in their early stages. As part of their due diligence, investors will want to ensure that the business has ownership of the relevant IPR and if anyone has contributed to creating intellectual property for the business investors will want to see relevant intellectual property assignment agreements that exist that assign relevant IP rights. In addition, investors will want to know that your intellectual property rights aren’t infringing on the rights of others (i.e. third party intellectual property rights). This is important as the investor will not want to make an investment then increase their risk of future litigation from infringement of the IP of others.
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Disclaimer – This is information – not financial advice
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Investing carries risks
The value of investments and any income derived from them can fall as well as rise and you may not get back the original amount you invested.
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