Hi Mark Kohler here with another two-minute tax on legal tip let's talk about techniques to bring on investors into your business
And I'm not talking about crowdfunding
I'm talking about significant money with just a few individuals that you need to take your business to the next level
Now the first important point here is to talk about the terms you're using
When you're talking to others about bringing on money into your business
And how we are going to talk about this topic here for the next couple minutes first
Let's talk about the term investors in and of itself that's not a term
I like to use and you've got to be careful when you're talking to others about putting money into your business and calling them investors
the sec or Securities and Exchange Commission would
Be very concerned if you were to lose someone's money where in their mind they were thinking of themselves as an investor
And you called them an investor, so this is a big topic
But let me define three terms that I think are important to use when you're talking about money coming into your business
The first term is lender not an investor, but a lender
they're gonna loan you money for a return on their investment and interest rate, and you're going to memorialize that with a
Promissory note and maybe even a trust deed where they get security in some property in the business or maybe even
stock if the business
But that's a lender not an investor use that term carefully between lender and investor when you're talking to someone about
Loaning you money use the right term now. Let's define the term investor, and as I mentioned a little bit earlier
That is a person. That's going to give money with an expectation of profit and
The SEC may even call that a silent investor because they don't have any
Real say in the business or management control or voting rights?
They're just gonna sit back and get money if you make money well folks those aren't lenders, and those aren't partners
Those are investors, and if they're a silent investor, and you lose their money
You could go to jail so you've got to be really careful when you take money from people and call them a silent investor
Get a consult from an internal or securities attorney on how to structure that so you could take money from a investor
The third term I want to introduce to you is the term
Partner and I love the word partner because they're going to have voting rights and they're gonna be in the mix with you
Maybe even if they're a minority partner
It's okay, but they're gonna have voting rights, and they're not just gonna sit back and expect profit
They're gonna be involved and be informed
That's a partner not an investor
And you have to treat them like a partner and that's okay because you can get out of all those investor rules
You're typically going to memorialize that with an LLC
limited liability company or a joint venture agreement or something other than a lender or Treat in unlike an investor, so
Think about that partnership when you want to bring on money to keep you out of harm's way with the Security and Exchange Commission
Finally as you can see this is a huge topic and I just scratched the surface
Please be careful when you're taking money from others understand the terms you're using and consult with an attorney
Always in this process and make sure you document it properly. You lose someone's money
It could be devastating for you personally and for your business now
I've got tons of information on this in my ongoing podcast and radio show in my blog articles
So please learn more about this from someone if not from me
Thanks for listening, and I hope that information was helpful and let me speak from the heart here
I've been talking about topics like this for 10 15 years. I'm a CPA attorney best-selling author radio show host and I am passionate about
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