How can you make an investment in someone else's company without showing your presence in it?

A client contacted us because they wanted to invest in a successful business that needed additional working capital for development. Two factors complicated our basic task of ensuring return on investment. For starters, the client did not want to be seen among the participants or otherwise demonstrate his connection to the company. Second, the client was leaving the Russian Federation, and the transaction had to be completed within 8 working days. 

How can we achieve guarantees of return on investment and ensure shadow corporate control in such circumstances? What mechanism or chain of mechanisms, when put into action, will produce the desired result? The only positive aspect of this situation was the borrower's and its participants' willingness to sign any contractual structures appropriate to the situation and provide assurances about the return on investment. 

We proposed two forms of contractual binding, considering the client's wishes and actual circumstances: a convertible loan and an option. Each of the proposed designs is described in detail below. 

  By putting together a convertible loan agreement. 

• A convertible loan agreement is concluded between the client and the company that provides for the lender's right to require the company to accept the lender into the company and acquire a share in the authorized capital instead of returning all or part of the loan amount, interest for using the loan, upon the maturity of the repayment period or other circumstances specified in the agreement. The contract also includes covenants that allow the client to demand early fulfillment of obligations, as well as conditions on the possibility and procedure for assigning all existing rights to a third party.
• Guarantee agreements are also signed between the client and the director, as well as the company's participants, to ensure that the loan is repaid by the company. At the same time, all the debtor's controlling persons execute security transactions on co-guarantee terms and in the full amount of the loan issued. 

  Through option construction. 

• The client makes loans to the company's participants, who then lend to the company. In exchange for the loans issued to the participants, the latter execute an option with our client under which he has the right to purchase their shares in the company at a price equal to 60% of the loan amount. However, the client has the right to such acceptance only in the event of non-repayment of issued loans, and only on the tenth day following the repayment deadlines specified in the loan agreement. In this case, the client pays for such an option by offsetting his existing rights of claim from loans made to participants.
• To protect the participants' shares from being sold, an agreement is reached between the client and the participants (or a third party controlled by the client to ensure confidentiality) to pledge shares in the company as security for a loan issued by the client (or another loan issued to the participants from a third party). The share pledge can be used completely independently and outside corporate control in this case. However, the investor will have little protection if the investment is not returned on time.
• This construction also suggests the use of a surety instrument. Such an agreement is reached with the company to ensure fulfillment of obligations of participants to the client. 

Each of the proposed options' strengths and weaknesses were explained to the client. The client was able to determine which of the existing mechanisms for securing obligations was best for them on their own. They eventually decided on the convertible loan option. 

The project was completed within the time frame specified. Participants in the company have provided corporate guarantees. The participants and the company's director are obligated to repay the loan made by the company. And all of this in the absence of corporate participation, including in the case of forced loan obligation execution.