Types of contracts required when investing into a company

Introduction

To determine which contracts are needed for investing in a company, you should consider the following factors:

(a) What kind of investment is it? Is it buying the company outright or purchasing shares in it?

(b) What is the purpose and subject matter of the contract?

(c) Who needs to be involved in the agreement, which depends on who has rights and responsibilities under the contract?

Parties' Aims and Objectives

If the parties aim to establish the primary commercial terms of an investment, a term sheet may be sufficient, and a memorandum of understanding may not be necessary. It's best to keep things simple at the early stages and use preliminary documents such as a term sheet, heads of agreement, or memorandum of understanding to outline the transaction structure and key commercial terms. The legal details, such as indemnities and warranties, can be dealt with in definitive agreements later.

If an investor wants to buy shares from existing shareholders and subscribe to shares of the company, it's possible to combine the share sale and purchase agreement and subscription agreement into one document. However, doing so could make the agreements unnecessarily complicated. The parties involved in each agreement are different, with the sale and purchase agreement being between the seller and investor and the subscription agreement being between the company and investor. The representations, warranties, and liability limitations may also differ between the two agreements.

Consult us

Getting appropriate legal advice early in the process of structuring a corporate transaction can help reduce time and expenses. At RGCOLaw, we are able to help you structure a legal and governance framework between the relevant parties pertaining to your investment.

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