Setting Up an Agreement With a Private Investor
Last we left off we were planning on approaching banks to try to obtain financing from our deals. Well our plans have changed. They’ve changed because we’ve had recent good luck with private investors which quite frankly are much easier to deal with. So just last night we met with a private investor and an attorney to talk about setting up an official agreement for us to work together.
This was the first time I’ve worked with a private investor, so I definitely had a few questions going into the meeting. Primarily I was wondering how to structure the agreement between my company and the private investor. There are probably a whole host of ways, but there were two primary structures that we discussed.
The first option we talked about was a joint venture. In this arrangement you setup a joint venture agreement that spells out the details of the joint venture. It talks about responsibilities, how money is put in, how money is paid out, what is to be bought, the approvals needed to make purchases, etc. It essentially outlines how you are going to operate together on the investment transaction.
Setup an LLC Together
The second way we discussed working together was through an LLC where our individual companies were the members. In this arrangement an operating agreement would be drafted similar to the joint venture agreement and it would also spell out the details on how we would work together.
Which One to Choose?
There are some considerations on which way to go with this. The joint venture is a little cheaper to set up, but the major drawback is that it can only be used to transact one deal. So, if you plan to do multiple deals the LLC probably makes more sense, but it is a little more costly to set up.
For now, we’re going to start out with a joint venture. This will allow us to work together on the first deal together, and we’ll both be able to evaluate how we’re going to work together. If things work out I think we’ll definitely consider setting up an LLC arrangement.