How do I bring on an investor for my business?

An investor wants to put money into my business, but I'm not sure what I should agree to before giving up ownership.

ARTICLE SUMMARY

Answer

Bringing on an investor typically involves negotiating the investment terms, deciding what the investor will receive in return, and documenting the agreement. Depending on the structure of the investment, the investor may receive an ownership interest, a share of future profits, or other rights.

Before accepting an investment, it's important to understand how the arrangement may affect ownership, control, decision-making, and your business's future. If the investor will receive an ownership interest, federal or state securities laws may apply even if the investment is private.

What should you negotiate with an investor?

The investment agreement should clearly describe each party's rights and responsibilities. Common topics include:

The amount of the investment.
The ownership percentage or other interest being offered.
Voting and management rights.
Profit distributions or returns.
Future funding obligations.
Exit rights or buyout provisions.

Clear terms can help reduce misunderstandings as the business grows.

What documents may need to be updated?

An investment often requires changes to your business's legal and operational records. Consider reviewing:

Operating, partnership, or Shareholder Agreements.
Investment or subscription agreements.
Business registration filings, if required.
Ownership records or capitalization tables.
Buy-sell Agreements.
Corporate resolutions or member approvals.

Keeping these documents current can help ensure the investment is properly documented.

What to do next…

Decide how much investment you need and what you're willing to offer in return.
Review your governing documents for any approval or ownership transfer requirements.
Negotiate the investment terms and document them in writing.
Update your business records and complete any required filings after the investment closes.

What to consider in your specific situation

The type of business entity involved.
Whether the investor will receive ownership or another financial interest.
The rights and responsibilities attached to the investment.
Existing agreements that may restrict new investors.
Tax and regulatory requirements related to the investment.
Your long-term plans for growth, financing, or future ownership changes.

Since every situation is different, consider getting more information through Rocket Copilot or an attorney review to move forward more confidently.

Explore more about changing a business

Explore more about ownership or investor changes

Changing business ownership requires careful legal planning. These questions cover how to add or remove a business owner, bring on an investor, and the legal documents needed for an ownership change. Learn how ownership changes impact your business registration, taxes, and existing contracts.

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