Law Office of Peter Cusimano, Barrister & Solicitor
Business Lawyer · Toronto, Ontario, Canada

Friends Wants Me To Invest in Their New Business. What Do I Need to Know?

by: Peter Cusimano
Business Lawyer - Barrister & Solicitor

Every business needs money to operate. One way of raising money is seeking out investors to become shareholders in the company. Often times, the founders will speak to family and friends and invite them to purchase shares in their corporation and become shareholders. Although this can be an exciting opportunity, it is important that as a potential investor you proceed with caution and do your homework before investing your money.

Keep in mind the following pointers:
  1. learn as much as you can about the business - if you don't understand the business or the operators do not give you adequate information for you to make a proper assessment of the business then it is likely not something you should be investing in
  2. learn as much as you can about the people who are operating the business including their background in business
  3. recognize that no business is a sure-win and every business is at risk of failure
  4. ask to see the financial records of the company and bring them to your accountant for review
  5. learn about the competition
  6. ask to the see the "minute book" of the corporation. Every corporation is required to have a minute book. If the corporation does not have a minute book, then you must insist that the minute book be brought up to date first. Bring a copy of the minute book to a business lawyer for review
  7. ask to see the shareholders' agreement for the company. If the company does not have a shareholders' agreement, ask that one be created as a condition of you advancing any money to the corporation
  8. sometimes, buying shares may not be the best way to go, and instead you may wish to instead loan money to the company
  9. there can be certain tax issues that need to be considered so it is important that you speak with your accountant to determine what is the best way to proceed
  10. certain documents should be prepared including certain resolutions of the directors, a new share certificate, and some other legal documents depending on how the transaction is structured. You should speak to a business lawyer who can advise you and ensure that the proper paper work is prepared
When considering investing in a company as a shareholder, it is best to first speak with your accountant and a business lawyer who can give you proper advice based on their expertise and experience dealing with other businesses.

In my law practice, I deal with businesses and also people who wish to invest. If you are considering investing in a business or you operate a business and are contemplating having additional shareholders in your company, please contact me and I would be please to assist you.

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