Legal

Investment documentation explained

A number of documents may be required for different reasons during the investment process. These documents are:

Business plan – Planning to successfully commercialise your idea should involve a number of planning steps. The preparation of a business plan is a mandatory requirement for the entrepreneur in order to develop and further the commercialisation of their idea. 

Developing a business plan will force you to think through some important issues that you may not otherwise consider - a beneficial process. Your plan will become a valuable tool as you set out to raise money for your business and it will provide milestones in your control process to gauge your success by measuring results against aims and objectives.

A business plan should be much more than a collection of financial statements and cash flow projections. The business plan should tell the person reading it how you are going to obtain strong results including sustained growth and profits, loyal customers and a high performing workforce.

To do this, your business plan will need to address many elements of the business especially sales and marketing as well as people (human resources), processes, customers (forming relationships), business strategies, goal setting, brand building, leadership and finance. Your business plan should address how your business intends creating a distinct and profitable niche in its market place utilising your unique selling proposition.

Information Memorandum (IM) – This document is often produced to clearly define what has been stated by the owners of the business about the business. It is designed to disclose all risks involved in the venture for the purpose of protecting both the investor and the directors of the company. It is the agreement that is acknowledged when an investor subscribes for shares in your venture. Legal advice is generally required to develop this document for any venture.

Shareholders’ agreement – The legal document providing protection to shareholders and setting out the rules for key areas of business decisions and controls.

Investment summary – This short document of generally two pages in length and is used to attract investors to a presentation or to request an information memorandum.

Constitution – A constitution exists for each and every registered company in Australia. A constitution is a list of rules that govern the running of a company. It outlines the framework for adhering to the requirements of the Corporations Act and ensures that some very basic decisions have been made and are in place when a company is formed.

Modified constitution – Every constitution is modified in some way. The term “modified constitution” generally refers to a constitution that has been changed to include protection for early-stage minority investors during the early days of a venture.