A business investment advisory contract is an important document that establishes the terms of engagement between a company and an investment advisor. As a business owner looking to work with an advisor, it’s crucial to understand what should be included in an advisory agreement. This helps ensure your interests are protected when seeking guidance on capital raising, M&A, valuation or other strategic matters. In this article, we’ll explore the key elements that are typically found in a business investment advisory contract sample pdf, including scope of work, fees, term & termination, liability, confidentiality, and legal boilerplate clauses. Properly structuring an advisory contract upfront lays a solid foundation for a productive advisor relationship focused on value creation.
Clearly defining scope of work and deliverables
The scope of work segment details the advisor’s expected services and deliverables to the client business. This should provide specificity around the exact nature of capital raising (e.g. target raise amount, preferred equity vs debt financing), financial advisory (e.g. conducting a valuation, identifying M&A targets), or other consulting projects being undertaken. Clearly defining project scope and expected advisor deliverables (reports, analysis, introductions to investors etc) ensures alignment between the client and advisor on the engagement goals. It also provides a way to track project progress and advisor performance.
Spelling out fee structure and payment terms
The fee structure lays out exactly how the advisor will be compensated for their work. Common fee structures in advisory contracts include: – Retainers – Fixed project fees – Percentage fees based on transaction value – Equity in the business being advised – Royalties/rev share on projects The contract should explicitly state all applicable fees and specify payment terms i.e. when advisor invoices will be issued and when payment is due from the client business. Complex fee structures may have tiers, milestones or vesting provisions that should be detailed clearly to avoid surprises down the line.
Defining contract term, renewal and termination
The contract term section identifies the intended duration of engagement between the client and advisor, often ranging from a few months to multiple years for longer term advisory mandates. It’s recommended to have an explicit end date to the term, while allowing flexibility to renew upon expiry. Clear termination rights for both parties are also important, such as ability to terminate with 30 days notice and ‘for cause’ provisions if there is a material breach of contract terms. Well constructed term, renewal and termination clauses help avoid advisory relationships dragging on aimlessly when the mandate has been completed.
Limiting advisor liability appropriately
Liability and indemnification clauses are standard sections used to define financial responsibility in case something goes wrong. While advisors typically seek to limit their liability for any business outcomes, clients want recourse in scenarios like gross negligence or misconduct. A balanced liability clause will limit advisor liability to a reasonable cap (e.g. to fees paid under the contract) except in cases of fraud, willful misconduct or gross negligence. The indemnification provision should require the advisor to reimburse reasonable legal costs/damages if their negligence causes harm to the client business.
Maintaining confidentiality of sensitive information
In their work, advisors will gain access to confidential and commercially sensitive information about the client’s business. A strong confidentiality clause is needed to ensure this information is properly protected and not shared or used without authorization. Consider broad definitions of what constitutes ‘Confidential Information’ and require advisors to return or destroy documents upon request. Allow information sharing only when necessary for assigned work and require written consent for any other usage. Confidentiality remains valid for a period even after the contract ends.
An effective business investment advisory contract balances protection of the client business’ interests with enabling the advisor to deliver on the mandate. Paying close attention to scope, fees, term, liability, confidentiality and other legal clauses in a contract sample helps put the engagement on a solid footing for success.