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.
Read our briefing note on how to run an early stage seed investmentDownload
"Edinburgh Technology Fund has used the MBM Seed Investment documents and they have proved to be very helpful in making seed investments quickly, cost effectively and with……