Protecting your interests in a group investment

If you are even a moderately successful investor, at some point in your life you will be approached to pool your resources with a group of people to fund a large investment. This investment could be a restaurant, an apartment complex, a software start up or just about any other idea people can come up with to make money. Some people will just walk away from these opportunities because more people introduces more uncertainty. Others will jump on board immediately. The wise ones will carefully review the investment and, if they think it is sound, they will cautiously enter the partnership.

I'm going to assume right now that someone is starting a hypothetical business (let's pretend they are launching a Subway franchise) and a few people are getting together to invest in it. You've done your research and you think that the investment would be a sound one. But, because you are a wise and canny investor, you insist on carefully working out all of the terms and crafting a legal document before handing over any money.

This document is commonly referred to as a Partnership Agreement. It is used to clearly dictate how the money is to be used, who controls what, who owns what, and what rules the partnership agrees to act under. If you invest in a group this is probably the most important document you will ever sign.

I'm going to write a series about Partnership Agreements, how they legally work, what you need to know before you sign one and finally I'll break one down to talk about the most important parts that protect you as an investor.

This is an on-going series, I'm about halfway done with discussing what I had orginially mapped out. After a couple days break to deal with some lighter issues (like humor), I'll be ready to publish the final three articles.

Introduction - The basics of entering a group investment
Part 1 - What a partnership agreement is, and what you need to know about it
Part 2 - What is my interest and how do I determine it?
Part 3 - Figuring out the managment