Advice - 10k investment in a ltd. company

Samba

Hi,

Would really appreciate some advice on an investment opportunity, bit of a long read, sorry.

I'm not investing my own personal funds but merely assisting someone to ascertain whether it's a viable/reasonable investment, I've never invested in a ltd. company before, so my first piece of advice was to consult his solicitor with regards the contract and I would offer whatever advice I could, which I knew would be limited, but when a friend asks you to help out, you do what you can

I'll state the facts and then give my own personal opinion.

Their main activities are in events management, they are a newly formed company who've only done a handful of such events to date.

In return for a 10k investment, they are offering 10% of net profits over 10 years, after which the investor would have no further stake in the company.

The investor will be repaid his initial investment by the third anniversary of the date of the agreement.


My opinion.

This is a terrible investment opportunity, if I was investing my own personal funds I would expect a permanent stake in the company, but then I'm not familiar with the nuances of investing in limited companies.

The Contract

I think the contract is very dubious, for example. They've had a number of meetings to date, where a variety of oral oral agreements were made, however none of these agreements are included in the contract, conveniently the contract also has this passage.

This agreement replaces and is deemed to be a novation of any previous oral agreements.

One such promise was an absolute guarantee that he'd see his initial investment returned within 3 years, while this is in the contract, strictly speaking and under the current contract, if they were to go out of business in 12 months time, the only financial liability the directors have as a limited company is for the companies assets, of which they have none.

It was presented to him in such a way that his initial investment was 100% guaranteed, but this is clearly not the case.


No figures have been produced to date, despite this they were expecting the investor to sign the contract :eek:, not even so much as a hint of projected earnings etc, never mind current accounts and profitability on past events.


I've made him aware of my concerns and he informed the company he wasn't willing to invest under the current contract, they've requested a meeting to see about amendments, and he's due to meet with his Solicitor.

Even if they are willing to satisfy certain contractual amendments, I have serious question marks over this investment opportunity and that's before even considering profitability of the opportunity.

Thanks for any advice you can offer,

Samba

Gloomtastic!

Are you making the investment or are you acting on behalf of someone making the investment? You write in the first and third person and it's a bit confusing, I think!

What are they going to use your money for? Is it to buy kit or just to pay running costs?

The biggest drain on the net profits will be the principal's salary. He could in theory take all the profits as salary and leave you nothing. If you were going ahead you need to get that sorted so you need to have some control over what constitutes net profit.

I work with a lot of event management companies, as well as manage a few small jobs myself. You give these guys an inch and they will take a mile. From my point of view, very job is on a payment on invoice basis - without exception. They've tried to burn me on too many occasions to be any different.

Work is pretty scarce at the moment and as far as I'm aware, Ireland no longer has any Event Management companies with any full time staff. So you won't be investing in a company as much as investing in a person.

However, you can make decent margins on some jobs, especially if you get on-going contracts for several years.

Samba

Gloomtastic! wrote: »

Are you making the investment or are you acting on behalf of someone making the investment? You write in the first and third person and it's a bit confusing, I think!

You're right, sorry pretty hungover and I was quoting segments of the contract. A friend of mine recently approached me asking me for advice on this investment opportunity and he's debating investing the full 10k.

I do backing/staking for online poker and for some reason he had it in his head I was some sort of investment expert, I invest in poker players, I've bought sold shares and done some financial spread betting etc, but that's as far as it goes and I generally consider myself quite ignorant in most matters investment related (outside of poker).

Gloomtastic! wrote: »

What are they going to use your money for? Is it to buy kit or just to pay running costs?

None of this information has been provided to date.

Gloomtastic! wrote: »

The biggest drain on the net profits will be the principal's salary. He could in theory take all the profits as salary and leave you nothing. If you were going ahead you need to get that sorted so you need to have some control over what constitutes net profit.

Great point, thanks.

Gloomtastic! wrote: »

Work is pretty scarce at the moment and as far as I'm aware, Ireland no longer has any Event Management companies with any full time staff.

This is another major concern of mine, I would have guessed this without knowing the industry in any great detail, however they do have plans to expand outside of Ireland.

But I have one other issue relating to this, they plan on running events under different names, and the contract clearly states the investor is only entitled to 10% net profits of activities conducted under one name.

They could feasibly run all high risk events under one brand name and events that are more likely to generate profits under another, it is stated accounts would be segregated.

Gloomtastic!

Too many ifs and buts, I'd say walk away. Or else get your friend to have the contract drawn up by his solicitor to his conditions.