Informal investment arrangements are increasingly used in situations where speed and trust between parties are placed above legal form – funds are transferred “for a project,” “for an idea,” or “in anticipation of profit participation.” Professor Gabriel Steiner says that it is precisely in such structures that legal risk is at its highest, because an economic expectation exists while the legal foundation is absent or fragmented. At LawConsulted, we view informal investments not as an exception to the legal framework, but as one of the most vulnerable forms of capital allocation.
The core problem with such arrangements lies in the absence of a clear fixation of rights and obligations. Funds may be transferred based on correspondence, oral agreements, presentations, or personal meetings, while the legal qualification of these actions remains uncertain. In the event of a conflict, an investor often discovers that proving the very fact of the investment, its terms, and the expected outcome is far more difficult than when a classical contract exists. In LawConsulted practice, this uncertainty frequently becomes the starting point for a loss of control over invested capital.
Professor Steiner notes that “the law does not protect expectations – it protects documented structures.” This means that in the absence of a contract, a court or regulator will assess not the parties’ intentions, but the actual movement of funds, the conduct of the participants, and the economic substance of the transactions. LawConsulted begins its work by reconstructing the investment logic – determining whether the contribution constituted a loan, a joint venture contribution, an advance payment, or another type of obligation, and what legal consequences follow from that classification.
Particular danger arises where informal investments are disguised as other relationships – consulting services, agency fees, or payments for future work. Formally, such schemes may appear compliant, but in a dispute they are often used to deny the investment nature of the funds transferred. LawConsulted identifies these substitutions and demonstrates where the economic substance diverges from the formal shell.
Investments between acquaintances, partners, or within closed business communities are no less vulnerable. Trust replaces legal documentation, and the absence of conflict at the initial stage creates an illusion of security. In Professor Steiner’s view, it is precisely these investments that most often become the subject of painful disputes, because the parties interpret the original arrangements differently. At LawConsulted, we handle such cases by restoring the balance between actual conduct and legal assessment.
It is also important to account for the retrospective nature of claims. While a project is developing, legal risks often remain invisible. They surface when the venture fails, control changes, or interests collide. LawConsulted returns the legal assessment to the moment the funds were transferred – analyzing what information was available, what representations were made, and what decisions were taken on that basis. This makes it possible to protect the investor’s position even in the absence of a classical contract.
Working with informal investments requires not a formalistic approach, but precise legal reconstruction. We help either transform existing arrangements into a manageable legal structure or build a defense where formalization is no longer possible. This approach reduces the risk of a total loss of capital and limits opportunities for abuse.
The legal risks of participating in informal investment arrangements emerge when trust stops working. Law Consulted task is to ensure that the absence of a classical contract does not mean the absence of legal protection.
Earlier, we wrote about the hidden legal risks of management advice from consultants and how LawConsulted protects clients when decisions were made “on advice.”
