Specific methods of acquiring a stake in a company - when I prefer not to assume certain risks
A traditional method of acquiring an equity stake in a company is through the direct purchase of shares (see the article Forms of Participation in a Company and Investment Valuation). However, this approach entails an immediate entry into the company and the assumption of all associated rights and obligations, including risks. This method is not always advantageous or feasible—especially if an investor wishes to first assess the potential of the business, limit their liability, or maintain flexibility in deciding whether to enter.
That is why there are specific forms of acquiring participation that provide greater control over risk, time horizon, and investor involvement. Unlike a direct purchase of shares, these options allow for capital investment with the possibility of future conversion (convertible loan, convertible bond), participation in profits without formal involvement in the business (silent partnership), obtaining legal certainty for future entry (options), or establishing rules for co-ownership at the time of entry of multiple investors (joint venture).
In the following text, we will examine various alternative forms of acquiring participation in a company that may be more advantageous than a direct purchase of shares in many situations.
Silent Partnership
A silent partnership is not a company in itself (it is not a legal entity); it is a commitment governed by the Civil Code. As a silent partner, you agree to provide a capital contribution to the entrepreneur in exchange for an agreed share of the profits from their business.
In this case, you do not actively participate in the business (you can only review business and accounting documents) and bear no responsibility for it—however, be cautious, as if your name appears in the company name, or if you declare to a contractual party that you are involved in the business, you may become liable for any debts.
Convertible Loan
With a convertible loan, you provide the company with an investment in the form of a loan with the possibility of future conversion of the debt into shares in the company. The basis is a standard loan, for which the timing and other conditions of conversion (e.g., determining the size of the share) are additionally agreed upon. If the company does not perform as expected, upon maturity, the loan will be repaid with the agreed interest without activating the conversion. Conversely, in the event of a successful conversion, the loan will be credited (either partially or fully) towards a direct share in the company, making you a partner.
Convertible Bond
Similar to a convertible loan, a convertible bond operates in the same way. In this case, the basic investment is not a loan, but a bond. It is a security based on which the investor provides the company with a certain performance (e.g., funds), and after the maturity period, has the right to demand the repayment of the nominal value of the bond along with a predetermined interest. In the case of a convertible bond, a conversion rate to shares in the company is then set.
Once the bond is due, you can either receive the amount increased by interest, or exchange the bond for shares and thus acquire a stake in the company.
Options
An option is a useful tool when trading shares of companies. It is a contract between the seller and the buyer, based on which you acquire the right (but not the obligation) to buy or sell the specified share (depending on the type of option) at a predetermined price. The other party will be obligated to accept your decision and sell or buy the share.
The right to buy (call option) can be advantageous if you want to have the option to decide later whether to purchase the share or not. The right to sell (put option) serves as a useful insurance in case you decide to sell the share back after acquisition.
An option always has a specified period during which it can be exercised, after which your right to buy or sell expires.
Joint Venture
The final tool for acquiring an equity stake in a company that we will discuss here is a joint venture. It is typically established through a partnership agreement and subsequent amendments to the company's articles of association upon the entry of two or more investors. In the agreement, you will set the rules for the distribution of shares, the business objectives to be achieved, the right to manage the company, mechanisms for resolving potential disputes, rules for profit distribution, and adjustments for the entry of new or exit of existing partners.
If you are entering the company with another investor, it is advisable to establish these rules in advance to prevent any potential disagreements.
Which form should you choose?
The choice of the appropriate form of acquiring participation in a company depends on your goals, willingness to take risks, and the level of involvement you prefer. If you wish to remain in the background and only participate in profits, a silent partnership may be a suitable choice. If you want to link your investment with the possibility of future entry while retaining room for decision-making, a convertible loan or convertible bond may be appropriate. These instruments allow you to invest first and then decide whether to actually become a partner based on the company's development.
For investors who want to secure the option to buy or sell shares under pre-agreed conditions, options are an ideal solution. Conversely, if you are entering the company together with another investor or partners, it is advisable to enter into a joint venture agreement that clearly sets the rules for collaboration in advance.
In practice, these forms are often combined and tailored to the specific needs of investors and companies. If you are looking for flexibility, gradual entry, or clearly defined rules of cooperation, these alternative methods may be the ideal way to acquire participation in a company without the need for an immediate purchase of shares.