How to draft a financing contract with a foreign investor

This concept was first used by the Supreme Court because partners were often unable to share profits, and after many incidents, they introduced such a definition and even provided the first model of an investment contract.

Contents:

• How to draft a financing contract with a foreign investor
• Startup and investor: how to formalize investment in the project and avoid legal conflicts
• Investment contract
• Methods of financing investment projects
• Foreign investor agreement
• How to Formalize Investments in Russia's Company

How to draft a financing contract with a foreign investor

It enshrines the key agreements of all project participants: the author, the investor, the performers. In fact, the investment contract is only a guide to the implementation of the project, which all signatory parties are bound to follow.

To find an assistant for the first step of an entrepreneur in a transaction is to engage a lawyer of your own. A common lawyer will not have the deal: each party must represent its own interests. To choose who has already worked with the startups and made such deals. Even if you have found a good lawyer you trust, you should not lose control of what's going on.

You need to understand the terms of the deal clearly, and if there's anything that's not clear, you need to ask a lawyer about it in detail, and you need to start by clarifying the main topics: distribution of shares, next rounds of funding, board membership.

It's important to take all the details into account in the investment contract to reflect what you've agreed with your partner: forms and stages of financing, key business plan indicators, project milestones, how to manage a company. All indicators must be measured and proven.

I have also seen a treaty without reference to the documentary evidence accepted by the parties of the fulfilment of the benchmarks — a guaranteed cause for dispute.

An investor must be a collective artist, not a businessman, but, above all, a lawyer. It must clearly spell out all the legal mechanisms. It is worth clearly describing the decision-making procedures, the interaction of the parties, the responsibility for breaching the agreement and the guarantee of its implementation. Every option must be tested for feasibility in the event of a conflict. Here again, it is a symbiosis of sound logic and legal technology.

So it's important to reflect all the scenarios in the contract. Positive is the friendly break-up of the partners. Here you need to describe in detail the conditions for obtaining options for the shares of your not yet existing company, which, at the time of break-up, could start the IPO, the formula for calculating the price of the shares purchased, the timing of payment, the payment, and other nuances.

Negative is a conflict situation. Selecting the right country if a conflict with a partner goes too far will have to go to court. In an investment agreement, you can prescribe which court will allow the partner dispute. It is no secret that many large Russian companies prefer to draft contracts in English law. Why do they do that? The main advantage of foreign jurisdiction is the best chance of judicial protection.

In Anglo-Saxon law, the more well-established model of investment relations, and therefore in case of breach of contract, the chances of success in court are higher.

For example, if a partner tries to avoid sanctions for breaching the terms of a contract, the court is likely to stand on your side. In Russian law, such mechanisms are still less effective, but it must not be forgotten that many liability measures will have to be implemented against a Russian company. Here, legal and corporate procedures under Russian law can no longer be avoided.

An inventive and active Russian lawyer can create a lot of problems for a party who has proved its right in a foreign court, and it is usually more expensive to conclude a contract in foreign jurisdiction because it requires the involvement of highly paid experts in international law.

To select the right funding structure, according to my observations, at the initial stage most projects are funded through statutory capital – that is, the author of the idea gets money in exchange for a share in the future business.

The more successful the business becomes, the more burdensome the intervention becomes, and the conditions for the investor's participation in decision-making and exit from the project need to be detailed.

If an entrepreneur believes that his companys' valuation at this stage is far below what it would cost to round A, he may invite investors to enter into a transaction on terms of convertible debt.

The investment comes in the form of a loan, and with the next round of financing, the investor will be able to convert this loan into a share of the property with a predetermined conversion factor. I would recommend first to develop a detailed financial model of the company with variable parameters. This model will be able to consider the result of different forms and conditions of financing. Here, it is better to focus on negative scenarios than to put in the model low credit rates and explosive growth in revenue for the second year of the project.

Be pessimistic. Reduce the tension. Know that after a deal, decisions in a company will be made differently than they are now: a board of directors will appear. The board will agree to do so in the form of an investment contract. For example, who will make decisions about budget and personnel changes? If you hand over these functions to the board, it can slow down operations in a company. To ease internal tensions in the board, independent experts can be engaged. If the investor agrees to such a condition, it will indicate that he does not lean towards authoritarian management.

Registration of the legal address of the organization — the actual address of the rented office or premises to be owned by the company must be indicated when registration takes place. The investment contract is important. This is very often the case. The right is the same freedom of choice as the countries of patenting. An agreement may be drawn up in one or more languages.

Even if you are preparing an agreement based on English law, you can apply Russian. If a dispute arises, the document will be translated. Some parts of the agreement may be subject to different law. For example, anything with respect to intellectual property rights acquired in the US will be subject to American law. But everything concerning corporate governance of a company established in Russia will be subject to Russian law.

This is done for many reasons. In some cases it is not possible to apply foreign law. You cannot prepare them quickly. And term sheet is another case. It usually takes about five pages. It contains information on what documents you will prepare in the future, how you will deal. Why is term-sheet necessary? This document is not mandatory.

It's an agreement about how you're gonna behave, negotiate, negotiate on the basis of which the price will be determined. Term sheet is a preliminary contract. This does not mean that all the documents that it mentions will necessarily be prepared. Negotiating in complex transactions is a very time-consuming process that requires a lot of detail to be worked out. You can't just sit them together at the table.

This is why term sheet is needed. A contract of employment with a temporary alien may contain obligations. This is usually a matter of confidentiality. For example, the parties agree not to tell anyone about a negotiation or transaction. Obligations may also concern exclusiveness. The investor may require that the project not negotiate in parallel with other investors or foundations.

How to formalize term-sheet Term sheet is the tip of the iceberg, most of which is underwater. In term sheet, you need to take into account all the details of the future deal. How to draw up a terms-of-work agreement with an investor? If the employment relationship between an entrepreneur and an employee continues after the agreed period, it is implied that the contract is valid for an indefinite period unless a specific extension period is specified.

If the contract is extended, the applicable termination provisions shall apply and the original of the contract shall be retained by the employee.

The model of a contract of employment with a foreign national can be attributed to the characteristics of an investment agreement: the relationship under the contract is generally long-term; an investment project must be prepared before the conclusion of the investment contract; each of the parties has the aim of obtaining a certain benefit; the funds transferred under the investment contract are spent for specified purposes; and the investment investor is generally unable to influence the economic autonomy of the other party in the execution of the investment project.

The subject matter and parties to the investment agreement The subject matter of the investment contract is the process of construction or reconstruction of the facility on the basis of the funds raised, and the right is sometimes chosen depending on it; what is exclusiveness and confidentiality is the prohibition of one party from negotiating with competitors.

Exceptionality is always, in one way or another, the subordination of one party to the other; it is a restriction on the freedom of one party, like any obligation; it cannot therefore be unlimited; you must agree on the extent of the restrictions, the duration of the restrictions and the territory of the restrictions.

Confidentiality is a very important question for startups. The project team signs term sheet, and they want to tell the world about it.

However, an investor may be opposed to such publicity, and you must respect its interests, and confidentiality must also be agreed upon and defined in terms of duration, scope of restrictions and publicity; how to register an ooo with the foreign founder of the Treaty of Assignment, representation.

Startup and investor: how to formalize investment in the project and avoid legal conflicts

How is it beneficial and safe to start and expand the business? What conditions to offer the investor and what to take into account when entering into a contract are many start-up entrepreneurs who want to start a start-up or expand their business and increase their profits are faced with the question of the source of funding. Engaging the investor in the translation from lat. However, a superficial approach to the choice of the investor can lead to disputes, including litigation, and even loss of seed capital. This publication will help to avoid such situations.

How to formalize a relationship with investors is the three effective ways to lose control of a business project is to negotiate one with the investor and write another on paper. We agreed to pay the investment in three tranches. The investor did not transfer the money in time, the project stopped bringing the money. The founder in minus, the investor of rights, because the contract has the possibility of postponing the transfer of the tranche without sanctions for the investor. To guard against such situations, I recommend that documents be prepared as agreed.

Investment contract

It sets out the key agreements of all project participants: the author, the investor, the performers. In fact, the investment contract is only a guide to the implementation of the project, which all signatory parties will have to follow. To find an assistant for the first step of the business in the transaction is to engage their own lawyer. The general lawyer will not have to represent each partys' own interests. It is worth choosing who has already worked with the startups and entered into such transactions. Even if you have found a good lawyer to whom you trust, you should not lose control of the transaction. You must understand clearly the terms of the transaction, and if something remains unclear, ask the lawyer about it in detail.

Methods of financing investment projects

It is fair to note that in order to attract foreign investment, an enterprise needs to develop and prepare a well-measured investment proposal; this requires a complete package of investment documents in strict compliance with all international standards; carry out economic and analytical work; study marketing markets, potential customers and compare these data with the possibility of meeting them.

As much as I talk to startups and entrepreneurs, most of them still have more questions about how to make an investment than answers. The questions that a few years ago are the same: what to make an investment in a company and how to make it right. There are many ways to invest business.

Foreign investor agreement

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How to Formalize Investments in Russia's Company

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