Equity Investment Agreement

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Equity, loans, and convertible debt—these are the most common types of investment funding that are usually undertaken by most business companies. They are just some of the many options including personal investment, fundraising, old-fashioned bootstrapping, and a lot more. You may also see investment proposals.

Before you seek funding from investors, make sure that you are certain in your idea that a support from the investor is the best way to move your business forward. When you and your team in your company have decide to go on an equity investment funding, it is best that you secure an equity investment agreement that binds the parties involved in the simple agreement. This would also secure both parties from any forms of fraud or deceit.

Examples of equity investment agreement are presented below.

Draft Equity Investment Agreement Example

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Company Equity Investment Agreement Example

Comprehensive Equity Investment Agreement Example

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Components of Equity

The equity component of a balance sheet and its recording and computation are something that are mostly feared by most accounting students, accountants, and even key personnel in an entity. The reason is the items in the equity is not tangible such as that of the physical asset. Only documents evidencing the ownership and the equity can be seen.

However, when you would like to go on an equity investment, it is vital that you must at least know the basics with regard to equity and its components.

When talking about equity investment, this obviously pertains to the investment that involves the equity components in a company’s balance sheet. So what are the components of equity? Below is a comprehensive discussion on the main components of equity. There might be other components, but the items listed below are always present in every company’s balance sheet. You may also see stock sale agreement

1. Capital Stock

This refers to the shares of the company sold to investors which represents ownership and provides benefits to the holder of such share including the right to receive dividends when the company pays them, the right to receive any remaining assets at liquidation, as well as voting rights. You may also like free partnership agreement

The share capital is recorded at par value or the dollar amount for each share which allows the company to record the issuance of capital stock in their financial statement. A note or disclosure must be provided in the financial statements stating the number of shares outstanding and the par value of each share.

2. Paid in Capital

The company sells the stock for a price agreed upon between the investor and the company, and the amount the company received when it issued the stock is called the paid in capital.

When it sells the stock, the company records the change in both the capital stock and the paid in capital, for paid in capital represents the difference of the money received between the par value and the selling price of the stock. This is also called share premium.You may also see subscription agreement examples

3. Treasury Stock

This represents shares of stock the company purchased of itself. These stocks have already been issued and the company purchased its own stock back in order to reduce the number of outstanding shares to manipulate the stock price or to award shares to employees. Treasury stock is reported as a deduction from stockholders’ equity for the total amount it pays.You may also see small business investment agreement

4. Retained Earnings

This represents the component of stockholders’ equity that are not from the stockholders. Retained earnings are generated from the income of the company. In the closing entries of a company, it must transfer its income summary to the retained earnings account. Net income increases the retained earnings and net loss decreases it. Retained earnings is decreased by the dividends paid when it pays to the stockholders.You may also see Subscription Agreement

Equity Subscription and Investment Agreement Example

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Housing Group Equity Investment Agreement Example

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Individual Equity Investment Agreement Example

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Types of Investor Funding

There are several types of investor funding, and the most common ones are as follows: equity, loans, and convertible debt. Each funding will be discussed in detail below.

1. Equity

Equity funding means that the investors will receive a share in your company and its performance moving forward in exchange for the money that they invested today. Equity is said to be one of the most sought-after forms of capital for entrepreneurs because it is an attractive option and it is a form of capital that requires the most seeking. You may also like business investment agreement

2. Loans or Debt Financing

Financing through loans or debts is the easiest among these three. The basic concept is that you borrow money now and pay it back later with an interest according to the agreed interest rate. Debt is also the most common form of outside capital especially for new businesses who have just established their business and they need more funds for the business to survive. You may also like marketing agreement templates and examples.

3. Convertible Debt

Convertible debt is a combination of debt and equity because you borrow money from investors with the understanding that the loan will either be repaid or converted into a share in the company in a later period of time.

Personal Equity Investment Agreement Example

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Private Equity Investment Agreement Example

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Scottish Equity Investment Agreement Example

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Overall

There are really instances when we need additional funding so our businesses can move forward. Equity investment funding is just one of the many types of funding that is used by many business entities to help their companies sustain and grow. The different types of investor funding are equity, loans, and convertible debt, which was explained in detail in the previous section. You may also like printable agreement examples.

When talking about equity investment, one must have at least the basic knowledge of the components of a company’s equity which are as follows: capital stock, paid in capital, treasury stock, and retained earnings.

It is best that you secure an equity investment agreement that will serve as a binding contract whenever you enter into an equity investment. Don’t forget to check out the examples of equity investment agreement presented above.

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