Legal Question in Business Law in California

Re: promisary note

I apologize for not having replied sooner but I have been in trial. I've been practicing for over 30 years into both trial as well as transactional work. More likely than not a promissory note is not the vehicle which you need. But it will depend upon what both you and your investor/"partner" wants. I would have to talk with both of you to determine exactly what he wishes to do in his position in the venture. There is no question that he wants to limit his liability and that is easily done through the vehicle upon which you would own and operate your restaurant. The question though it is our there hidden liabilities because there's a bar incorporated into the restaurant which requires an alcoholic beverage license.I have been practicing law in the San Francisco Bay area for approximately 35 years and expert in the area in the category in which your question is placed. I feel I can help you in this matter and if you wish to consult with me please contact me at 925-945- 6000.

Re: promisary note

It depends on the whether the investor wants to own part of the restaurant. If the investor simply wants to act as a lender, a promissory note secured by the assets of the restaurant would be perfect. The investor would have no liability and would have a secured right to repayment. If the investor wants to own part of the restaurant, a limited partership could be formed. You can be the general partner (which has liability) and the investor can be the limited partner (which has no liability). Of course, when I say "you" I mean the LLC or coporation that you would first establish to be the general partner (which would she you personally from liability). In addition, you and the investor can form an LLC or corporation together to own the restaurant. So long as the LLC or corporation is run properly, liability will not fall on the members or shareholders (you and the investor). We set up and establish entities and asset protection almost on a daily basis. Please give us a call. (The call is free.)

Re: promisary note

A promissory note is one vehicle to use, but that only gives your investor - in the case of a note, a lender - a fixed return for the period of the note.

The silent partner can be best protected in one of two ways - formation of a limited partnership where he, as a limited partner, has exposure limited to his investment and another person - the general partner - has exposure for all obligations, or a corporate entity such as a Subchapter S corporation or a limited liability company. The downside of the general partnership is finding someone (even you) who will be willing to expose all assets to any liability or claim. The better course of action is to form a limited liability company or Sub S corporation - both provide a limitation on liability (to the extent of the assets of the business)and provide partnership-like flow-through of tax benefits; that is, the entity files an information return rather than paying taxes, and the owners - say, you and your investor - report the profit and/or loss on your individual tax returns.

I'd be happy to provide you a courtesy copy of a memorandum on the distinctions in the business entities, or to assist you in structuring your business.

Re: promisary note

It would be better i you formed some sort of business entity, such as an LLC or a corporation. That would give you some protection, too.

Re: promisary note

Every business should have an attorney handy. You may contact me and retain my services.