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July 13, 2010

Did you know you should use legal counsel when seeking investors?

I know that you are a serious entrepreneur and are trying to make the most with very little, but now it is time to talk about serious legal issues that you may encounter as you establish your business. That’s right, there are legal issues with any business and this is why you should get some legal counsel when you draft your business plan and attempt to close a deal with investors.

Click here to see what resources are available to you in getting your business on the road!

Now, what does this mean, legal counsel? Does this mean that you need to hire an attorney? Well, yes. You should hire a good attorney when you work on sealing deals with investors and all other aspects of doing business. However, the attorney you should hire should not be any kind of attorney. You need to hire an attorney who is familiar with business and corporate laws. Furthermore, your attorney also has the knowledge to draft nondisclosure agreements that you should require investors to sign before they do their due diligence on your business plan. This is very important because a nondisclosure agreement is a legal binding document that protects your trade secrets, intellectual property, and patents; preventing investors from giving all your trade secrets, patents, and intellectual property to your competition.

Legal counsel can also help you with other legal issues in dealing with investors as well. A good business or corporate attorney can also help you with dilution issues. What does this mean? Well, when an investor invests in your company, he is buying shares in your company’s equity and a share dilution is when shares in your company are diluted to a fraction of the value before the investment. This is primarily done to allow for the investor or investors to have their shares in the company. Your attorney can draft anti-dilution protection documents to allow for your investors to keep the shares they have in your company without the shareholder’s shares being diluted.

An attorney can also help with drafting the terms sheet, which an entrepreneur and the prospective investor will sign before sealing a deal. Like nondisclosure agreements, a terms sheet is also a legal binding document which explains the exit strategy, how much money an investor will invest in the company, and how many installments the investor will provide the funding. Usually, these installments are known as tranches and are determined by milestones and each tranche is issued by the completion of each milestone. Your attorney can work with both you and your investor to set the conditions on your terms sheets so that it benefits both you and your investor.

Click here to get all the resources you need to find investors and information on how to get the right legal counsel!

At VCgate, you will have all the resources you need to get established, plus with the VCgate Venture Capital, Angel Investors, and Private Investors Database, you will have access to over 4300 investors worldwide and you can sort them out by industry, stage, and geographic preferences. Best of all, you can even email several investors at one time with a single click of the mouse.

See everything else that we have available for you at VCgate, including advice about how to seek the right legal counsel for your company and more.

All the best, and good luck!

Amir

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