Using investor money before incorporation
My company is yet to be incorporated, The PVT LTD registration for the same is under process.
I have a few investors lined up. I wanted to know if I can use their money to start the development of my product because the incorporation will take atleast 3 more weeks.
Or if there can be some formal agreement or MOU between me and the investors so they don't back out.
Asked 2 years ago in Business Law from New Delhi, Delhi
There has to be an agreement or a MOU between the investors and the owner of the company which will make his company reliable and trustworthy.
The Funds invested by the investors are meant for utilisation only but better to have a proper ad legal settlement or agreement so that even the investors are assured of their investment.
Can we have an agreement or a settlement and take his money before the company is incorporated.
Also the investor was keen on writing the cheque on the company name as it would give him tax benefits than to write a cheque in my personal name. Is their way around it which could give the investor some tax benefit ?
Asked 2 years ago
The tax benefit will be available only when he invests in a company and not on any individual. Therefore making an agreement on behalf of the company for this investment will be a better option, let the cheque be on the company name itself.
1. Instead of full fledged contract get a MOU done as it can be converted into a contract after the incorporation of your company.
2. Yes before the incorporation you can take money. It is permissible under Companies Act.
3. The cheque can be given in the name of would be company.
1) if the investors want to participate in growth prospects of your organisation they will wait for 3 weeks for your company to be formed
2) since investor wants to write cheque in favour of company for tax benefits wait for company to be incorporated
3) it is not in your interests to take any money in your personal name . You would be liable to refund the money in case investor wants to exit
1. You have already formed the Company and applied for its registration before the Registrar of Companies,
2. You can collect the money from the investors at this stage also and use the fund for which it has been collected,
3. What will be the terms and type of the investments? Will they put the money as Fixed deposits? what will be the interest rates?
4. Make sure that you bare aware of the basic rules of formation of companies and their workings to avoid any future problem.
1. When you have formed a Pvt. Ltd. Company, you shall have to abide by the prescribed rules,
2. In which form you will,collect those invested amounts? FD or by issuing shares?Or as loan received from the investors?
3. Consult a CA in this regard to guide you in financial management of your Company.
Hi sir/madam, you and investors may entered in to Memorandum of Understanding, this MOU nothing but Agreement. You should clearly mentioned what you have intended the company when and where started alongwith highlighted your company objects in detail while they don't back terms and conditions at any moment. Before starting the company cannot write the company name on the cheques because of company yet to be started.