Hi mark Kohler here with a tax and legal tip
That is so important that it could save you a lot of money and potentially getting in a huge lawsuit
with a potential partner
investor or lender that's right
this is all about how to
Classify the person you're going to be working with or persons that are providing money to you and your small business or real estate
Project so listen up. This is a big deal now. This is also a big topic
I've got a good half hour or longer video in my video library
And this is a whole chapter in my book the tax and legal playbook at the end of this video
I'll give you a couple of references on where to study up more on this
But I want to just give you again a cursory knowledge of the issue here
And here's the biggest takeaway don't call anybody an investor when you go on say oh
I'm looking for an investor that
That sends out a code word that could get you in a lot of trouble with the Securities and Exchange Commission
SEC and that could be a federal issue or even a state issue because if you call someone an investor and lose their money
That's right
You can be going to jail so make sure that you don't use the word investor until
It's appropriate now as you can see with the title of this video there are three classifications. There is the lender
there is the partner and
There is the investor now each one of these people are different you cannot have someone
That is in several categories
They have to be in one category so for example if you're gonna borrow money from someone and say hey
I've got this real estate deal
I'm gonna borrow it 8% and give you a couple points and you're gonna sign a promissory note with them
Then they are a lender you cannot say oh, and I'll give you 20% of the profit on the back end
Okay, that doesn't work now. They're a partner because they're gonna in a piece on the back
End and they're just suck they just got sucked into any potential lawsuit because they're now a general partner with you, and you go
We'll mark there's these participating notes where they're gonna be a lender and get a piece of profit. Yeah, it's
When you have a general partnership scenario and someone got ripped off
Anybody that gets a piece of the action?
Becomes a partner so if they're a lender they're a lender they get a promissory note. They get a trust deed whatever some security
That's great
Lenders are cheap
We want lenders because you just give them interest in a couple points
But if you want someone to put money in your project we're talking partner now
I like the partner auction because it's the safest option for securities issues, and you're not gonna call them an investor
You're gonna say do you want to partner with me?
And it could be in a business or a real estate project and they're gonna get a percentage of the deal
And they're gonna put money or services in the in the project or deal right they're gonna put in money or service and you're gonna
Document this bare minimum with a joint venture agreement or some sort of partnership agreement. That's bare minimum
I'd like to see an LLC structure with even S
corporations in the mix or at least just a basic LLC with an operating agreement guys
You don't want to be knocking this out on your own on some google site where you just get a template
These are major important legal issues, and if you're gonna be partnering with someone for thousands of dollars
You don't want to play lawyer in this situation and I get it, too
You don't want to spend thousands of thousands of dollars with this
But get a document have a lawyer review it and warn you as to some of these issues?
It's something that we do all the time in our law firm very affordably for clients, but that's the partner option
They get a voting right they're not in the dark, and if you call them a silent partner
That's an investor and there you go investor silent partner equals investor
They're gonna put in money
And then they don't get to vote they are gonna sit back and you're gonna do whatever the heck you want with the project right?
That's what you want. You just want someone
Hey, come in best with me, and I'm gonna go out and make money and give you some profit
But I'll call you when it's all over
Then you lose their money
And there was not the proper disclosures or disclaimers or SEC or state or federal?
documentation when you took someone's money and made promises and they didn't get kept up to date
And they didn't get to vote oh my gosh. This is where the investor issue arises now
I love investors
And I want you to put together your own little fun 500 grand or a million dollars and start your business
Or do real estate, but you have to set up
What's typically called a ppm or a reg d offering and go through the rules of how you?
Take money from people crowd funding falls into this - you've got a bunch of investors. We're gonna put in a few thousand dollars
Those are investors bottom line you've got to know this you've got to know the difference between
lenders partners and investors and use the right terminology
It's gonna keep you out of hot water this goes from a promissory note to an LLC to a ppm a private placement memorandum
Our law firm does all three and everywhere in between
Just get a lawyer involved to help do it right you're taking thousands of dollars from someone
And when you do it right you earn their trust
And you know what Mike experienced project managers, or deal makers or business owners?
It's easier to find money than to find deals because when you do it right people trust you
So learn about this you're gonna
Love it and you can get more information about this on my website with some information to follow and from my book at the tax
With legal playbook learn it and be careful
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