Investment Contract: Special Features of Concluding

Investment is one of the main engines of a modern business, a powerful source of making a profit, and means of innovative business ideas implementation. However, it is possible to talk a lot for a long time about the risks of investing, particularly – if it comes to venture investments. Statistically, 9 of 10 startups do not survive. Losses in most cases are borne by investors. If we are talking about investing in an established business, not a startup, both an investor and a customer are imposed to a risk.

Among the risks of investment – malpractice of parties, for example, unfair distribution of profits, a unilateral violation of a trade secret, and use of confidential information to one`s advantage.

An investment contract is a medium of reducing many risks to their minimum in relations between parties of an investment project. This contract clearly determines mutual rights and obligations, terms, stages, conditions of a project realization. From a legal perspective, where no template approaches are permitted. Being aware of all perspectives and risks of concluding an investment contract, parties must thoroughly consider all nuances, as well as engage an experienced lawyer to draw up and assess a contract.

The notion of an investment contract

Note! It is possible to invest in real estate and property rights, innovative ideas, and an established business, fixed capital, and establishing an enterprise from scratch. Investments may be in the forms of money, equipment, special bank deposits, knowledge and business reputation, shares, intellectual values, etc. Due to such a variety of forms of investing a general notion of an “investment contract” unites different means of a legal arrangement of investments.

Important! Now we are going to take a closer look particularly at contracts related to investing in business (on different stages of its lifecycle).

An investment contract is an economic and legal contract, which is concluded between subjects of investment activity: customer/founder and investor. This contract states the fact of investing money or other values in an investment object, determined the objective (obtaining a product), regulates the rights and obligations of parties. An object of a contract is an investment in any form, which is not prohibited by the Law of Ukraine. The only template of this document does not exist, as each investment project is unique both from commercial and legal perspectives.

Legislative regulation

Since an investment contract under conditions of investing in a business is economic legal action, it is regulated by norms of the Economic Code of Ukraine. In order to determine grounds for concluding this contact, it is necessary to refer to provisions of the Law №1560-XI “On Investment Activity” of 18.09.1991, the Civil Code of Ukraine, the Decree of the Cabinet of Ministers of Ukraine №112 “On Approval of the Order of State Registration of Joint Activity with Participation of a Foreign Investor” of 30.01.1997.

Important! According to Article 9 of №1560-XI, a contract (an agreement) shall be the basic legal document, which shall regulate mutual relations of subjects of the investment activity.

Apart from the legal acts mentioned above, it is also worth mentioning the Law №1116-IX “On State Support for Investment Projects with Significant Investments” of 17.12.2020 and the Law №1667-IX “On Stimulation of the Development of the Digital Economy in Ukraine” of 15.07.2021. The “Stimulation of the Development…” Law must be viewed in the context of establishing a special legal regime from “Diia City” residents with an opportunity of concluding such kinds of investment contracts, as a contract of convertible loan and an option contracts.

Characteristics of investment activity subjects

An engine of investment activity is, on the one hand, a need to receive funding or attracting of non-monetary values for business development, and on the other hand – a wish to gain profits by persons who own free funds or non-monetary values. Therefore, subjects of investment activity – parties to an investment contract – shall be a customer (a person who attracts investments) and an investor (a person who provides them).

Customer/founder of a project

Depending on a stage of a business lifecycle, at which investments are attracted, it can be either an author of an innovative idea, a startup founder, or a manager of an established enterprise. Later, a customer becomes responsible for the financial results of project realization, the fulfillment of obligations provided by an investment contract, and for funds granted by an investor.


Natural person or a legal entity who is investing money or non-monetary values in the development of an investment project. An investor expects to gain profits from his investment: a) regular or one-time financial payments (dividends); b) share in authorized capital with a right to operate and make decisions or without it. It may also mean making profits either in a short time after investing, or in a few years or even decades.

There are several risks for an investor which may be predicted and regulated beforehand in agreements with a customer. For example:

  • Deciding on an increase in the authorized capital (with possible “blurring’ of shares) and on operations exceeding half of the company value/authorized capital;
  • Amount, periodicity, deadline for receiving dividends;
  • Appointing a chief director and a chief accountant, dismissing employees unilaterally by one of the partners;
  • Control of investor over not entire corporate structure (if a company is comprised of a few economic subjects of different organizational-legal forms) – a possibility of investment assets withdrawal to non-controlled by investor elements of corporate structure.

Note! Prior to concluding an investment contract, it is necessary to conduct a complex inspection of another party (Due Diligence). An investor must inspect the following aspects: a) an investment object; b) a customer. A customer also must analyze the business reputation of a potential investor.

Inspection of a potential partner prior to the conclusion of an investment contract must include:

  • Assessment of information about owners (beneficiaries) and top managers, as well counterparties of a company that is an investment object;
  • Searching for information in state registers – legal disputes with participation of a potential partner, the existence of tax debt or other debts, arrests or other encumbrances of company assets, corruption offenses;
  • Expertise of constituent documents, personnel documentation, and main contracts with counterparties.

Types of investment contracts

For a correct from the legal perspective arrangement of investment contracts, a few contractual structures are used. The choice in favor of one or another contract is made considering a stage of a project lifecycle, tasks, and wishes of participants. In practice, only a few types of investment contract arrangement are preferred.

Contract of corporate rights sale and purchase

Entry in authorized capital is conducted by the purchase of a share in authorized capital by an investor/an additional investment in authorized capital is made in monetary or non-monetary form. While investments are only seen as an introduction of money cash-in, when money from the sale of a share goes into a company and goes for its development. Purchase of corporate rights with the introduction of money cash-out (when money goes at the disposal of a participant who had sold a share) is not an investment. Note! This type of arrangement of optimally suits in case of investing in an established business.

Loan contract

By lending money an investor can expect profits in a form of interests. It is quite a profitable model, because a customer shall be obliged to pay off a loan even in case of a project crash. Instead, in case of success, an investor cannot scale up his profits – it is limited by the number of interests. Note! This type of investing is suitable if a customer is a sole proprietor. However, if there is a request to affix a share of an investor in a business appropriately (with an opportunity to increase profits in case of business growth), a legal entity or a joint-stock company shall be registered.

Joint venture contract

An alternative is a simple partnership. It is about the type of contractual relations without a legal entity registration regulated by the Civil Code of Ukraine (Articles 1130-1143). Contracts may be concluded by natural persons and legal entities, sole proprietors. A joint venture may be performed based on uniting the participants’ contributions (simple partnership) or without uniting the participants’ contributions. Note! This type is profitable for the realization of some projects. For example, a customer may provide qualified staff and technologies, undertake administration, but an investor may provide funds and use his business reputation to promote a project in the market.

Note! With the coming of the Law №1667-ІХ into force, for IT companies who are residents of Diia City new types of investment contracts arrangement become available for them (the following elements were adopted from the English law).

Convertible loan agreement

The terms of this contract provide the right of an investor to choose at his discretion a form of paying back the loan within a defined period from the following: a) funds; b) share in the authorized capital. If a project is successful, an investor may expect an opportunity to scale up his profits.

Option contract

Setting down guarantees concerning the right of an investor to purchase a share in the authorized capital of a company at a price specified while concluding a contract. In case of successful development of a company, the price of a share increases by many times, but an investor is able to purchase it for a pre-defined price.

Structure and essential terms of an investment contract

The conclusion of all types of investment contracts mentioned above requires thorough preliminary preparation. It is necessary to enshrine a lot of obligations in written form. Sometimes these obligations must be fulfilled prior to the existence of an investment subject (prior to establishing a company).

Important! For some reasons (particularly, under the conditions of investing in a non-structured business) it is necessary to conclude an agreement of intent (memorandum, preliminary contract, letter of intent) before signing an investment contract. In this document previously achieved verbal agreements are gathered, particularly participants of a project are determined, their obligations and responsibility in case of their non-observance. Instead, in case a dispute occurs and a lawsuit is filed by one of the parties, an agreement of intent will have no force. It is a convenient instrument of preliminary regulation of relations between participants of an investment project before the conclusion of the main contract.

An actual investment contract is developed by experienced lawyers. In this process, lawyers representing the interests of an investor and a customer must be engaged.

Essential terms in this contract are the following:

  • Obligations and responsibility of parties;
  • Price of a contract;
  • Time frame for investment project implementation;
  • Amount, ways, and time of profit acquisition;
  • NDA (confidentiality) observance;

Note! It is necessary to take care that a contract does not contain any terms that cannot be fulfilled. For example – an obligation to vote for certain decisions in management bodies of a company.

State registration of joint venture contracts with the participation of a foreign investor

Important! Investment contracts on a joint venture, which is not related to the establishment of a legal entity, with the participation of a non-resident investor are subject to state registration, as stipulated by the Law №93/96-ВР “On the Regime of Foreign Investments” of 19.03.1996, the Decree of the Cabinet of Ministers №112, and the Decree of the Ministry of External Economic Relations and Trade №125 “On means of providing fulfillment of the Decree of Cabinet of Ministers №112” of 20.02.97. Particularly, production cooperation agreements, joint production agreements are subject to state registration.

Card for state registration of an investment contract is issued based on an application and a package of documents submitted to the regional/Kyiv City State Administration (via Administrative Services Centres). A package of supporting documents must include:

  • Application letter from an applicant;
  • Original agreement and its notarized copy;
  • Information card by a form provided by the Ministry of Economy;
  • Notarized copies of constituent documents of an external economic activity subject and certification of its state registration;
  • License, if an activity requires licensing in accordance with Ukrainian legislation;
  • Registration document for a non-resident company – record from trade, bank, and court register (translated in Ukrainian and legalized);
  • Under the condition of submitting documents by a representative – a corresponding mandate of its representative;
  • Document certifying payment of administrative fees in the amount of six tax-free minimums of the citizens’ income.

***Note: In case of the justified necessity from an applicant different documents may be required for determining purposes of concluding a contract, its compliance with requirements of Ukrainian law, determining essential conditions of activity, the ability of parties to conclude a contract.

Documents may be submitted: a) personally; b) via a legal representative; c) by registered mail. Consideration of documents takes up to 20 days. As a result of consideration, an applicant is issued a card for state registration of an agreement or a written message of refusal. In case of making a positive decision on state registration, a corresponding mark is made on an original contract.


An investment contract is a general legal notion designating different types of investment documentation, regulates legal relations between subjects of investment activity: customer and investor.

The conclusion of this contract leads to significant financial or other material consequences. In order to secure own assets and profits, it is necessary to: a) conduct a preliminary inspection of a partner and investment subject; b) if required, conclude an agreement of intent; c) develop by yourself or conduct a thorough legal expertise of an investment contract developed by a partner; d) ensure state registration of an investment contract to provide evidence base in case a dispute with a partner occurs.

Lawyers of the Attorneys at Law “Bachysnkyy and Partners” are ready to take responsibility for issues related to investment support and M&A. Contact us to receive appropriate legal protection of your interest as an investor, or a customer.

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