Investment agreements are negotiated and finalized every day, and these agreements often can be very lucrative or rewarding in various ways for different purposes.
In many instances, the business professionals will discuss various terms of an agreement before making a final decision to move forward.
Terms Of An agreement
There are cases when the terms of an agreement can be misunderstood, and professionals may move forward with an agreement based on unclear terms.
This can be costly, time-consuming and sometimes even damaging to the business relationship.
An investment letter agreement is not a legally-binding document in most cases, but it can be a helpful tool for both parties because it can clarify the terms that both have verbally agreed to before the investment is finalized.
If you are interested in drafting an investment letter agreement, it is important to follow a few important steps.
Identification Of The Two Businesses Entering The agreement
The purpose of an investment letter is to get both parties to agree to the terms of an agreement without entering into a legally-binding agreement, and the terms may actually be negotiated through revisions to the investment letter agreement.
In order to accomplish this, the two entities should be clearly identified. It is important to note if an agreement is between a subsidiary or a different branch of a company. The entities as well as the main contacts at those businesses should be identified.
The Terms And Conditions Of The agreement
The letter agreement should also clearly outline the terms and conditions of the agreement between the two entities. This will include the responsibilities and duties that each entity is agreeing to.
It will also include how profits will be shared or what compensation each will receive as a result of the responsibilities and duties agreed to.
This should be very clearly outlined, and the wording should be clear and concise so that there are no misunderstandings or disagreements.
It should also clearly state when the terms of the contract will go into effect as well as when the agreement will cease or what steps each party needs to take for the agreement to cease.
In some cases, there may be special exclusions that may apply to the agreement. For example, one entity may only agree to provide certain resources or a limited amount of manpower to a special combined work effort or project.
Additional resources or manpower may need to be compensated for with an adjustment to the profit-sharing terms in the agreement.
This is just one of many examples of special exclusions or terms that need to be outlined.
This information can ensure that both parties are on the same page with regards to the structure of the agreement, and it can protect the financial interests of both parties when the exclusions and limitations are clearly outlined.
How Disputes Will Be Resolved
The letter can also outline the steps that will be take to resolve any disputes that arise. This may include arbitration, mediation or other steps.
When an agreement is well-written and thoughtfully drafted, the likelihood of a dispute developing will be minimal.
However, there is always a chance that the terms in the agreement are not fully drafted or complete or that unexpected situations may arise that can impact the relationship of the two partners. Therefore, establishing a method for disputes to be resolved is important.
This section of the letter may also state what may happen if an agreement to the dispute cannot be reached so that the agreement can be dissolved in a manner that is mutually agreeable to both parties.
The Need To Consult With An Attorney
It is important to note that an investment letter agreement typically is not a legally-binding document, but it can be in some cases.
The wording in this type of document can actually create an agreement between the two parties that is legally-binding even if the two parties did not intend for this to be the case because of this, it is important to have an attorney review the document before the letter of intent is submitted to the other party.
In many instances, simply stating that neither party is legally committing to the terms in the letter at this point may be sufficient.
However, the wording in the letter may unintentionally bind the parties in certain ways.
An initial investment agreement letter can be used as a negotiation tool so that the two parties can fully agree on the terms.
There may be instances when multiple drafts of the agreement letter are submitted back and forth between the two parties before a formal agreement is drafted.
The attorneys for both entities may review the investment agreement letters as well as the final, legally-binding document to protect the interests of the two parties.
sample investment letter agreement
COMPANY LETTERHEAD IF APPLICABLE
Name of Business (if applicable)
City, State, Zip Code
Name of Receiver
Name of Business (if applicable)
Address of Receiver
City, State, Zip Code
Dear [Name of Receiver],
This is an investment letter agreement that aims to lay out the terms of the agreement you and I discussed on [date]. The terms and conditions specified in this letter are not obligatory on me, and I am willing to negotiate.
We have decided to join into an investment arrangement in order to launch a catering business.
Food preparation and shopping will be my primary responsibilities, while accounts and marketing will be yours.
We’ll pay ourselves and our staff a fair wage, and any earnings after salaries will be split 50/50. The amount of wages is still being negotiated.
We’ve also decided to take out a small company loan to cover the start-up costs, and we’ll both be co-signers.
We’ve collaborated on a business plan that outlines our goals for the next five years and has been authorized by the bank.
I propose that we meet in two weeks on [date] at [Name of Lawyer office]’s to finalize the salary and sign a partnership contract.
Before we meet with the lawyer, we can meet at a time that is convenient for you to discuss the matters on which we have not yet agreed. To schedule a meeting, please phone (555) 123-4567 or email [firstname.lastname@example.org].
This letter is a formal indication of intent to begin a catering service investment agreement with you.
We must settle on the major elements of financial distribution and meet with an attorney to sign the contract.