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Dealing with Indebtedness

An investor will most likely want to have an indication of the indebtedness of a company before he invests. Sometimes, the directors of the company might be owed money by the company itself. This may be due to deferment/accrual of fees or salary, or by virtue of the director having loaned money to the company. Most investors would not want any new investment they put in to be immediately used to repay debts owed by the company. Accordingly, the investor might agree that the directors can be repaid over a period of time, or that any debt be converted into equity (i.e. shares) in the company, or, in certain circumstances, that the indebtedness must be written off. 

It is important, therefore, for the company and the investor to discuss any such indebtedness at the Heads of Agreement stage so that an approach can be agreed. MBM Commercial has prepared a Seed Investment Heads of Agreement which is available to download for free on our website, and which contains a ‘conditions precedent’ section dealing with indebtedness.

HELPFUL TIPS ON SEED INVESTMENT DEALS

EIS and SEIS - Tax Relief

Check Your Company Books Are Up To Date

Use Heads of Agreement for Main Deal Terms

Share Capital Table and Dilution

Agree the Process and Documents to be Used

Choose an Appropriate Adviser

Dealing with Indebtedness

Updating the Company’s Records Post-Investment

Document Indexing and Signing Requirements

Scots Law or English Law

Read our briefing note on how to run an early stage seed investment

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