What is appropriate for Investor’s Contracts?
There is no standard thing called an “Investors Contract”, and it sounds as though you are trying to re-invent the wheel here. It also sounds as though you are doing all of this yourself, instead of using an experienced lawyer…which is a very, very bad idea.
For example, in virtually every case I can imagine, the “contract” you are describing is an asset that absolutely would transfer to the investor’s estate in the event of his death. Indeed, to have an investment that is limited by the life of the investor is, in my experience, completely unheard of.
Are there ways to draft an agreement so that the investor has what is called a “life estate” in the proceed from the royalties? Sure. But something like that would be way, way outside the norm.
So my suggestion here is that (a) you accept the fact that in exchange for the 15K investment you are paying a 20K liquidation preference and 10% of the gross revenue, and that such payments and repayment will inure to the benefit of your investor and his estate, and (b) that you immediately go to a lawyer, and have the lawyer re-draft your agreement to supersede the home-grown one that you are now using.
*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *
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This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.