Some legal forms do a better job of facilitating some forms of investments. Any lawyer worth their salt would, of course, say, “it depends…”
Alternative Lending Platforms
A broad term used to describe financial channels that provide loan options to consumers and business owners outside of a traditional financial systems of regulated banks and capital markets
Primary purpose of intermediary: Channel capital from Investors to enterprises
Asset Management Firms
Firms that invest clients’ capital for them and provide investors more diversification and investing options than they would have on their own
Primary purpose of intermediary:
Pool capital to increase efficiency and reduce risk
Broker Dealers
Firms that buy and sell securities on their own account as a principal before selling those same securities to customers
Primary purpose of intermediary:
Facilitate exchange across scope and scale
Business Incubators and Accelerators
Organizations that are setup to nurture small startup enterprises by providing services that they may not have access to on their own
Primary purpose of intermediary:
Provide knowledge and access to opportunity
Commercial Banks
An institution that provides services such as accepting deposits, making loans, and offering basic investment products to businesses
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Community Development and Finance Institutions
Referred to as CDFIs, these private sector financial institutions focus on personal lending and business development efforts in local communities. Internationally referred to as Non-bank financial institutions (NBFIs).
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Credit Unions
An institution that operates similarly to a bank but is owned by members in the form of a cooperative and gives members governance rights
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Crowdfunding Platforms
Internet platform that provides a way for a large number of people to provide money in small increments in support of a person, project, or entity
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Exchanges
A marketplace in which securities, commodities, derivatives, and other financial instruments are traded
Primary purpose of intermediary:
Facilitate exchange across scope and scale
Family Offices
Financial institutions that manage the family wealth of high net worth individuals
Primary purpose of intermediary:
Provide knowledge and access to opportunity
Foundations
These are usually created by a single primary donation from an individual or a business. They generate income by investing an initial donation and disbursing 5% or more of total assets to charitable activities and organizations.
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Merchant Banks and Investment Banks
These institutions facilitate large, complex investments by providing a range of services including raising capital, negotiating mergers and acquisitions, underwriting risks or acting as agent in issuing securities to the public
Primary purpose of intermediary:
Facilitate exchange across scope and scale
Microfinance Institutions
MFI’s provide financial services targeted for poor and low-income clients including savings, credit, insurance, remittances, and payments in amounts considered too small for traditional finance institutions
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Mutuals/Mutual Aid Societies
This member-owned organization provides insurance or financial services to the group of members; any profits made are used to improve the products and services it provides
Primary purpose of intermediary:
Pool capital to increase efficiency and reduce risk
Non-Bank Financial Institutions
Commonly referred to as NBFI’s, they provide bank-related services but do not have a full banking license and are not supervised by a national or international banking regulatory agency
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Pension Funds
These types of funds are the accumulated contributions from employers, employees, or both from which payments are drawn through periodic payments after employee’s retirement
Primary purpose of intermediary:
Pool capital to increase efficiency and reduce risk
Wealth Advisors
An investment-advisory entity that includes financial planning, investment portfolio management and a variety of financial services to high net worth individuals and families
Primary purpose of intermediary:
Provide knowledge and access to opportunity
Private Equity Firms
These organizations make direct investment into companies through investment strategies such as leveraged buyouts, venture capital, and growth capital
Primary purpose of intermediary:
Pool capital to increase efficiency and reduce risk
Syndicates
A temporary group of professional financial services formed to handle large transactions that would be difficult for an individual company to manage and to allow members to pool resources and share risks
Primary purpose of intermediary:
Facilitate exchange across scope and scale
Non Governmental Organization
A non-profit, citizen-based group that functions independently of national governments. They are largely funded by donations or volunteer-driven
Primary purpose of intermediary:
Provide knowledge and access to opportunity
Development Finance Institution
DFI’s provide finance to the private sector for investments that promote development and to help companies to invest in countries with limited markets
Primary purpose of intermediary:
Channel capital from Investors to enterprises
Expectations for return are calculated by measuring potential risks over time, and then subtracting the cost of the investment.
Cooperatives
A structure that allows members to have share in ownership and the decision making process of an organization and may potentially allow non-member money
Cooperative Societies (UK), Fraternals (US)
Corporations
A company or group of people authorized to act as a single entity (legally a person) where each shareholder is taxed on the dividends on their shares
International Corporation, Transnational Corporation, Stateless Corporation, Multinational Corporation
Partnership
An association of individuals or entities that join together to conduct business and each partner has unlimited liability
Joint Venture, General Partner (UK)
Companies
A business organization that allows for significant flexibility in how members organize themselves and allows for passed-through taxation
LLC or LLP (US), Private Limited Company (UK)
Holding Companies
This type of company owns enough voting stock in other companies to control policies and management. They exist for the purpose of owning property, such as real estate, patents, trademarks, and other assets
Parent Company
Individuals (With a Bank Account)
Anyone who holds a bank account can issue loans and therefore can enter into a legally binding financial contracts
Sole Proprietorship
General Partners
A general partner is an owner that has unlimited liability and is active in the day to day operations, usually as a managing partner
Limited Partners
An ownership arrangement that includes at least one General Partner that has unlimited liability for the debts and liabilities of the partnership and at least one Limited Partner whose liability is generally limited to his/her investment in the partnership
Limited Partnership (Canada)
Not for Profit Organizations
An organization that does not have owners and is usually formed to achieve some charitable, educational or civic purpose; money earned by or donated to a not for profit organization is used in pursuing the organization’s purpose or mission and may be closely regulated by the state
501c3, Charitable Entity, Mutual Society, Non Governmental Organization
Social Purpose Companies
A form of corporation where the board is permitted or mandated to consider the interests of stakeholders other than shareholders
Community Interest Company (UK)Benefit Corporation (US)
Sole Proprietors
The exclusive owner of a business, entitled to keep all profits after tax has been paid. They are simple and cheap to set up, but owners are personally liable for all losses
Financial instruments are rightly thought of as vehicles because they make capital move. Vroom Vroom!
Commercial Paper
A short-term debt security issued by financial companies and large corporations. Companies sell commercial paper when they need a short-term loan to pay for such things as accounts payable and inventories. Corporate debt that matures in less than one year is typically called commercial paper.
Convertible Debt
When a company borrows money from an investor and the intention is to convert the debt to equity at some later point.
Derivative
An arrangement or instrument (such as a future, option, or warrant) whose value is derived from and is dependent on the value of the underlying asset
Direct Public Offerings
When a company raises capital by marketing its shares directly to its own customers, employees, suppliers, distributors, and friends in the community. Sometimes referred to as investment crowdfunding.
Guarantee
The responsibility taken for payment of a debt or performance of some obligation if the entity primarily liable fails to repay
Insurance
A payment for future losses is guaranteed by way of collecting small sums of money from various people and organizations into a collective fund. That that can then be drawn upon in the event one of its members is adversely affected by a predefined risk (example auto, health, and flood insurance)
Interest Rate Swaps
In this derivative two parties agree to exchange interest rate cash flows based on a specified notional amount, from a fixed rate to a floating rate, or one floating rate to another
Mergers or Acquisition
The use of debt, equity, and hybrid financing techniques to acquire a company or merge two companies together. The focus of acquisition finance is on identifying the optimal financing solution.
Note
A written promise stating that the maker will pay the holder regular sums of money with or without interest for a specified amount of time and can be either backed by assets (secured) or not backed by assets (unsecured)
Project Finance
The long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors
Security
An investor’s ownership position in a publicly-traded corporation. This could be a stock, bond, or an option. It’s a way to represent the relationship between parties
Trust
A fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.
Program Related Investments
PRIs are made by foundations from their grant disbursement to support charitable activities that involve the potential return of capital within an established time frame
Mission Related Investments
MRIs are drawn from the corpus of the foundation and support a positive social or environmental impact, while generating reasonably competitive rates of financial return
Initial Public Offerings
This is the first sale of stock by a private company to the public. IPOs are used by smaller companies to raise money or by larger private companies looking to be publicly traded.
Trade Finance
Reconciles the needs of the importer and exporter by financing international trade through lending, issuing letters of credit, factoring, export credit and insurance
Bonds
An interest-bearing, discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific time intervals, and to repay the principal amount of the loan at maturity
Sovereign Bond
These are bonds issued by governments. They can be either local-currency-denominated or denominated in a foreign currency. Sovereign bonds and sovereign debt can be used interchangeably, but sovereign debt can also refer to the total outstanding stock of a country’s government debt
Equity Investment
Investments made by individuals or firms through buying and holding of stock in anticipation of income from profit in the form of dividends or capital grants
Grant
Capital transfers in cash or in kind payments made by governments or foundations to organizations to finance all or part of the costs of a project, without the expectation of a return of capital
Blockchain
A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly
Bitcoin
A type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank
How might changing a document be a subversive act?
Term Sheet
A document that outlines the material terms and conditions of a business agreement. It guides legal counsel in the preparation of a proposed “final agreement”
Subscription Agreement
an investment at a certain price; and a promise by the company to sell shares at that price
Sale and Purchase Agreement
A legal contract that obligates a buyer to buy and a seller to sell a product or service
Loan Agreement
A contract between a borrower and a lender that regulates the mutual promises made by each party
Stock Pledge Agreement
Documents the potential transfer of stocks against a debt. For example, margin loans
Operating Agreement
An agreement among limited liability company (“LLC”) members governing the LLC’s business, and members’ financial and managerial rights and duties
Partnership Agreement
A contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners
Shareholders' Agreement
A contract between the shareholders of a corporation, although more often the relationships are regulated by the constitutional documents of a company
Security Agreement
Provides a lender a security interest in a specified asset or property that is pledged as collateral
Investment Policy Statement
A document (also known as a IPS), generally between an investor and the investment manager or consultant, recording the agreements the two parties come to with regards to issues relating to how the investor’s money is to be managed
Letter of Agreement
A written list of goods, services, or space to be provided at the agreed-to prices, terms, and time. Once signed by associated parties it is a binding contract
Memorandum of Understanding
Mutually understood terms and conditions of a partnership or agreement, often referred to as an MOU
Non-Disclosure Agreement
A legal contract (referred to as an NDA) between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but restrict access to or by a third party
Private Placement Memorandum
A legal document (also referred to as an offering memorandum or PPM) that is provided to prospective investors when selling stock or other security in a business that are sold to investors and not for resale
Request for Proposal
A solicitation (also known as an RFP), often made through a bidding process, by an agency or company interested in getting a commodity, service, or valuable asset, to potential suppliers to submit business proposals
Prospectus
A printed document that advertises a commercial enterprise in order to attract or inform clients, members, buyers, or investors
The substance of the investment (and a bunch of the power) is in the details!
Reporting and Communication
Predetermined form and schedule for reporting and communicating with investors or other stakeholders. This outlines rights investors have to information about the company
Share
A percentage or unit of ownership in a company or mutual fund; usually issued to the shareholder in the form of a certificate
Dividend
A return paid regularly (typically quarterly) to shareholders out of a company’s profits or reserve
Premium
A return in addition to the basic value, due to additional factors such as the investor’s willingness to assume risk
Royalties
Return based on revenue or cash flow tied to a particular product or asset in the company
Termination Clauses
A section of a contract that describes what will happen if the contract ends early or in default
Voting Rights
The right to vote on or veto corporate or company policy and who will make up the board of directors
Warrant
The right but not the obligation to buy or sell a share or security at a certain date before expiration
Escrow
Money held by a third party on behalf of transacting parties
Maturity Date
The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid
Term Length
The timing for the duration of an investment, and how long the terms are expected to be upheld
Annuities
A stream of payments that comes from a structured payout at some future time
Coupon
The annual interest rate paid on a bond, expressed as a percentage of the face value
Futures
Agreements to buy or sell a specific amount of a commodity, currency, or a financial instrument at a particular price on a predetermined future date
Interest Rate
Percentage of a loan that is charged to the recipient of the loan for the use of the money
Options (Puts and Calls)
The rights to buy or sell property that is granted in exchange for terms that are agreed upon. A call allows the owner to buy at a certain price. A put option allows the owner to sell at a certain price
Antidilution Clause
A provision in an option or convertible security that protects an investor from equity dilution resulting from later issues of stock at a lower price than the investor originally paid
Liquidation Preference
Determines who gets paid out first and how much when a company is liquidated. Used to allow venture capitalists to claim profits or get initial investment back before those who invested later
Tag Along Rights
Pre-negotiated rights that allow minority shareholder to sell his/her share if a majority shareholder is selling their share. Majority shareholders are often able to facilitate what would otherwise be a difficult sale
Vesting
Process of acquiring rights gradually over time. The rights could include benefits such as pension contributions or equity participation, such as stock options