Business Lawyers in Columbus, Ohio
By - October 22, 2026 - Uncategorized
Bringing on investors can provide the capital needed to fund projects and grow your business. However, it can also change your company’s ownership structure and often comes with specific legal and regulatory requirements. That’s why it’s important to be intentional and thorough when making deals with investors. Let’s take a closer look at how to legally onboard investors into your company.
Before accepting money from an investor, decide which investment structure works best for your business. There are a variety of options and each can have different financial, legal, and ownership implications. For example, with stock or membership interests in exchange for funds, the investor typically becomes an owner and may gain benefits like voting rights. A convertible note may start as debt but later convert into ownership interest. In a Simple Agreement for Future Equity (SAFE), an investor may receive the right to ownership after a future triggering event.
Your company’s legal entity type, how much money is being raised, how you intend to use the funds, investor expectations, and other factors can impact which structure is right for your business. Additionally, it’s important to think about how the deal might affect existing owners. Be sure to take the time to decide what investors get in exchange for their funds and what your company will then be responsible for.
Investors will typically take time to review your business records as part of their due diligence. This is a great time to make sure your records and disclosures are up to date. Doing a review of your own business can help you identify issues that need to be addressed before closing to make sure you’re giving investors accurate information.
If you’re worried about unintentionally misrepresenting your company, a business attorney can help you review important documents and determine if any issues need to be resolved.
Before accepting new funds from investors, review your business’s governing documents. For a corporation, this might include articles of incorporation, bylaws, stock purchase agreements, shareholder agreements, and shareholder or board resolutions. For a limited liability company (LLC), documents might include the operating agreement or articles of organization.
There may be provisions that impact the proposed deal, such as provisions that:
Remember that sometimes, investments may require amendments to your governing documents.
Federal securities laws and state securities laws may require companies to register with the Securities and Exchange Commission (SEC), or may provide exemptions from registration. Depending on the structure of the transaction—including the type of securities being offered, the amount being raised, the type of investors you’re working with, and how you’re marketing the investment—your company’s arrangement could be considered a security. The location of your business and the investors can also impact the rules you must follow.
When communicating with potential investors, make sure you’re providing accurate information and proper documentation about your business and the investing opportunity. Failing to comply with an applicable securities law can bring about penalties, financial liability, and other potential consequences, as well as disputes with investors.
When onboarding investors, you’ll need to prepare documents that will govern the transaction. While the specific documents needed will depend on the type of investment, they typically include information like:
These documents should also state what happens if circumstances change, such as if you decide to do another round of investing, issue additional equity, change the company’s ownership structure, or sell the business.
Clearly defining the rights and responsibilities of investors can help reduce uncertainty and prevent future disagreements. Consider including: Voting authority, often based on the percentage or type of ownership interest held Economic rights, such as the right to dividends, distributions, sale proceeds, and more, depending on the deal structure Information rights, such as periodic business updates, financial statements, and other information about the company Transfer restrictions, which dictate when an investor can sell or transfer ownership to an outside party Responsibilities, such as the duties involved in a management role
After the transaction closes, it’s important to update your company’s records to reflect the new ownership or financing arrangement. For an equity deal, this can mean updating your capitalization table (“cap table”). This gives an overview of your company’s ownership structure, including who the owners are, their interest percentages, classes of equity, and more.
You’ll also want to update your company ownership ledger and other records. For a corporation, this might include stock records and certificates. For an LLC, this could be your membership records and operating agreement. Additionally, it’s a good idea to keep copies of the final agreements, amendments, disclosures, and other transaction documents.
There’s more to investor onboarding than simply accepting a check. Whether you want assistance determining the best investment structure for your business, reviewing and updating documents, or making sure you’re complying with all applicable laws, Stevens Law Firm can help. Contact us today to book your free consultation.
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