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Do you need to give an investor a say in business decisions?

On Behalf of | Dec 24, 2021 | Business Law |

You’re looking to expand your company, but you don’t have the capital to do it. You decide to get an investor, who you convince that the company is going to be very successful. Believing that they will see a good return on their money, they give you that investment upfront.

Once they do, they start contacting you to ask if you’ll take certain actions or to have a say in your general business decisions. Do you need to let them have a voice at this time, just because they invested in your company? Or are you allowed to make whatever decisions you want as the owner of the business?

The contract and the investment stake

First and foremost, you just need to consider the contract that you gave the investor when you accepted their money. If it says that they get a voice in business decisions, then you have to honor that. They may not have invested if they hadn’t been given that stipulation.

Another important thing to think about is the percentage of the business that they own. In many cases, a minority owner cannot direct how money is used. If you only gave up 25% of your business in exchange for that investment, you are still the owner of 75% of the business and you get to make the decisions. If you gave up 51%, then the investor may have the right to make the decisions. If you split it 50/50, then the two of you may need to work together to find an agreement, which could potentially lead to disputes.

Understanding exactly how the investment was set up is just the first step. If disagreements do still arise, then you need to know what other legal steps you may need to take.

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