With a minority interest in a small company, I would not be worried about suits and/or government regulators. Assuming that you are not active in the management, you should not have any potential problems as long as the structure is a corporation or LLC. You should never enter into a partnership as an investor unless it is a limited liability partnership.
What you should be concerned with is the governance provisions. How will the company be managed? What are the duties of the officers to protect your investment? How well do you know the management of the company? What has been their track record? How much "skin" do they have in the game (what is their investment, potential loss?) You never want to invest where the management does not have some real investment in the company.
Is there an adequate "Private Placement Memorandum"? The PPM lays out the plan of operation, the risks, the track record of management, etc. There should be full disclosure.
Investing in private companies is high risk. Your investment is generally very illiquid ... which means you generally can't get your money out if you need to. Unfortunately most new companies underestimate the funds and/or time for the company to become self-sustaining. Which means there will often be need for additional funds. So what are the non-dilution provisions in the event of additional financing is necessary?
This is not something to be entered into without lots of due diligence.
What you should be concerned with is the governance provisions. How will the company be managed? What are the duties of the officers to protect your investment? How well do you know the management of the company? What has been their track record? How much "skin" do they have in the game (what is their investment, potential loss?) You never want to invest where the management does not have some real investment in the company.
Is there an adequate "Private Placement Memorandum"? The PPM lays out the plan of operation, the risks, the track record of management, etc. There should be full disclosure.
Investing in private companies is high risk. Your investment is generally very illiquid ... which means you generally can't get your money out if you need to. Unfortunately most new companies underestimate the funds and/or time for the company to become self-sustaining. Which means there will often be need for additional funds. So what are the non-dilution provisions in the event of additional financing is necessary?
This is not something to be entered into without lots of due diligence.
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