Business investment vs. loan

I tried a photography business roughly 10 years ago. I told family members and friends I would probably need $10,000 to start it along with the money I had. One family member said she would give it to me no mention of lending or me borrowing and if the business made money they agreed we would come up with a percentage to split on profits. No contract or agreement of money given, partnership, or anything in writing was made. She wired $10,000 into my account and things got started. Unfortunately the business failed and all that remained was equipment. I spoke to her husband about selling the equipment and giving back to them as much of their money as I could. He told me not to worry about it and that we would barter for services if his company or family ever needed photo work done. Then out of the blue several years ago, they wanted the equipment so they could sell it for some of their money. I sent the equipment to them and nothing more was said until several years later, current day, when they are now demanding their $10,000 and saying it was a loan. I have other family members and friends that can testify that in the beginning, I was looking for money to put towards a business venture, no loan or borrowing ever mentioned. I told them that as a gesture of good faith I would send them $100 a month until I gave them $2000. I felt that along with the equipment they got, it would make things right. I haven’t heard anything more from them but am I under any legal obligation to pay them at all when they got the equipment and everything of material value from the business?

Asked on August 30, 2018 under Business Law, Florida

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 2 years ago | Contributor

1) A loan is when there is an agreement to repay the money, at some certain time or on some certain payment schedule. If the agreement was that they'd get a share of profits from the business rather than repayment, it was an investment, not a loan, and there is no obligation to repay; that the business will fail and you'll never make good on your investment is a risk of investing.
2) Even if it was a loan, if there was no written loan agreement (only an oral agreement or understanding), they can only enforce it for up to four years after you failed to repay when you should. (That is based on the "statute of limitations," or time within which you must file a lawsuit, for violating an oral agreement). After four years, they have no legal ability to force you to pay, so you could simply refuse.


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