Loaning Friend Money, Best Way To Secure Payback?

[PaulAllen]

I am buying into a new company that a few friends are starting. I am to receive 7.5% of the revenue. I'm not putting in a lot of money.

My question is: What sort of documents, contracts, etc. should I get signed? Should they be notarized? Should a lawyer look them over? Should I get copies of all the partner's passports? Etc. Etc.

Should it state in the contract that I can look at the books when I want or at the end of the month?

I wont officially be on the company "list" of employees but I want as much paperwork covering my investment as possible and something that will stand up in court if it comes to that.

Any ideas or suggestions please?

Regards,

PA

[monty]

It's not a loan per se, since you are to receive a percentage of revenue for your investment.

They can give you shares, bur they won't give you any return unless the company actually makes a profit!

Basically you can draft an agreement between you and the partners, but in case of a dispute it'll probably end up in a civil court case which can take several years and lots of lawyers fees to resolve.

In short, if they are friends, don't do it unless you are really behind the business and will be involved on a day to day base. Anyway, you'll stand a big chance of loosing friends!

[henryalleman]

I am buying into a new company that a few friends are starting. I am to receive 7.5% of the revenue. I'm not putting in a lot of money.

My question is: What sort of documents, contracts, etc. should I get signed? Should they be notarized? Should a lawyer look them over? Should I get copies of all the partner's passports? Etc. Etc.

Should it state in the contract that I can look at the books when I want or at the end of the month?

I wont officially be on the company "list" of employees but I want as much paperwork covering my investment as possible and something that will stand up in court if it comes to that.

Any ideas or suggestions please?

Regards,

quote

I always had one rule in my life since I was a young man.

never give a loan to friends or family or be partners in a business. My longlife experience is that if you don't follow this rule, you loose frends and family together with your hard earned cash. In saw this happend too many times over and over again.

[BEENTHEREDONETHAT]

It's not a loan per se, since you are to receive a percentage of revenue for your investment.

They can give you shares, bur they won't give you any return unless the company actually makes a profit!

Basically you can draft an agreement between you and the partners, but in case of a dispute it'll probably end up in a civil court case which can take several years and lots of lawyers fees to resolve.

In short, if they are friends, don't do it unless you are really behind the business and will be involved on a day to day base. Anyway, you'll stand a big chance of loosing friends!

I agree with the above. You are getting shares in the company. Suggest you take 7.5% of issued shares and hope for the best or don't do it at all. Only do it if it is money you can afford to lose.

[Martian]

I agree with previous poster don't mix family/friendship with finance AND politics.

I've held to this rule with my Thai wife and it has worked albeit rough in the beginning. She understood more clearly when two of her friends "defaulted" on money loans she gave to them...now she follows my policy and is much happier.

Martian

[roygsd]

I am buying into a new company that a few friends are starting. I am to receive 7.5% of the revenue. I'm not putting in a lot of money.

My question is: What sort of documents, contracts, etc. should I get signed? Should they be notarized? Should a lawyer look them over? Should I get copies of all the partner's passports? Etc. Etc.

Should it state in the contract that I can look at the books when I want or at the end of the month?

I wont officially be on the company "list" of employees but I want as much paperwork covering my investment as possible and something that will stand up in court if it comes to that.

Any ideas or suggestions please?

Regards,

PA

I would rather sit on a cactus than lend money to a company, you have no conrol of your investment and all of the risks.

If you must lend your friends money lend it to them personally but if they have no tangable assets for you to realise your loan then forget it.

You could have a house full of paperwork covering your investment however it could prove to be the most expensive toilet paper you have ever paid for.

If you are not actively involved in the business then I suggest you save yourself a great deal of effort,time, worry and money and give it a miss.

Sorry to be so negative but been there done that.

roy gsd

Edited August 16, 2008 by roygsd

[Moonfruit]

The major difference to make here is that you are not making a loan, you are making an investment. BIG difference.

A loan you can expect to receive back. An investment you HOPE to receive back with dividends.

So long as you make sure that your name is on the shareholder list of the company, which ANYBODY is entitled to get a copy of from the ministry of commerce, then you are entitled to your 7.5%. However, making sure that the other partners give you your full dividends is the tricky part. I suggest being up-front with them from the outset in that you would like to see the books (both the real books, and those prepared for the revenue department) on a certain date every month. Call it a shareholders meeting if you will. On the other hand you need to make sure that you don't expect too much of them, by wandering into the place of business in an afternoon when you have nothing to do, just to make yourself busy!

I personally disagree with the idea of not to do business with family and friends. In many of our businesses, our partners are family or friends and so long as everything is laid out in black and white before anything is signed, everybody knows what is expected of each other. Of course, it can go pear shaped, but so it can with any partner. It is much less likely to do so in my personal opinion with a friend or relative.

As for the comment above re: sitting on a cactus, well, thats a very odd comment. Again, it is an investment, and if you believe in the idea, and those people who will be behind the business, you stand to reap the rewards too. At the end of the day, start-up businesses are one of the riskiest investment vehicles, however the rewards are also potentially huge. If its a small amount anyway, whats the harm?