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Alternative investments – what to look out for when entering into an investment agreement

With banks offering low returns on savings and increasing uncertainty in other markets, investors are increasingly turning to alternative investments as a means of seeking growth on capital.

Although too risky a business venture for Alan Sugar; as seen in the recent series of The Apprentice; alternative investments in wine, cars, art and race horses are becoming increasingly popular. However, such investments should be treated with equal (if not more) caution than traditional investments like buildings and shares, which can be easy to forget; especially if you are indulging in a passion.

Whatever you are investing in, the following points should always be considered:

  1. Title.  Does the seller own what it is purporting to sell?  (It is surprising how often this is not the case).  You also need sufficient documentation to evidence that title is being transferred on a sale.
  2. Encumbrances.  Can the seller sell what it is purporting to sell free from interests of third parties, such as mortgages, liens or other forms of security or rights?
  3. Tax.  You should discuss your proposed investment with your accountant and your solicitors.  There may be tax advantages in buying via a limited company or limited liability partnership and capital gains tax points to consider, some of which may be reduced by buying via a pension scheme.  There may also be stamp duty or other taxes payable when you make your purchase.
  4. Insurance.  Specialist brokers will be able to advise you on keeping your assets safe and adequately insured.
  5. Exit strategy.  It is essential that you have an agreement between the investors regulating the relationships between the parties and the procedure that needs to be followed if an investor wishes to dispose of his or her interest in an asset. If you have a set time by which you need to see a return or require your investment back, you need to ensure you have the flexibility to do so within the agreement.

If you require any legal advice in relation to alternative investments, or indeed any form of contract or agreement, please do not hesitate to get in touch.

By Stephen Greenwood, Commercial Contracts Solicitor

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