Setting up a private investor in my business?

There is currently seven partners in my business we have an investor that wants put in $100,000 what are our options when setting this up?

Asked on May 21, 2009 under Business Law, California

Answers:

B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

There are a lot of different options here, and which one is best depends on a great many things.  You should talk to a lawyer about this, and one place to look for an attorney who can explain your options and set up the necessary paperwork is our website, http://attorneypages.com

The simplest way to do this is a promissory note, an i.o.u., that would have the interest rate and repayment terms.  Your investor would not get a piece of the business, he would be a creditor.  There are a number of different ways to set that up.  And the investor might not be satisfied with that.

You could also make the investor the eighth partner, and you would probably want a written partnership agreement that describes each partner's share of the business.  A variation on that is a limited partnership, in which one or more partners does not get to run the business on a day-to-day basis, but gets a share of the profits.

Other alternatives are forming a corporation or a limited liability company (LLC).  Each of these possibilities has its own advantages and disadvantages.

Your lawyer will want a fair amount of information, to help you choose -- and to negotiate with your investor and his lawyer.  There are different tax consequences, sometimes, and your lawyer will probably want to talk to your accountant as well.


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