Legal Question in Business Law in Maryland

Re: We are selling a percentage of our company

No, a simple note will not work.

Why not? You are selling securities! This is (1)an investment of money; (2)with the expectation of a profit; (3) in a common enterprise; and(4) to be derived in whole or substantial part from your efforts, not the investor's. When the answer to all four of the above is yes, you have a security.

This is a very serious matter! Offerors of securities are personally liable for all misstatements and omissions that are made in the offering. Offerors of securities must disclose all material information to prospective investors or it is fraud. A fraud claim will result in both civil fines and even criminal penalties imposed on you (i.e. jail time).

Material information is diclosed through a prospectus prepared by an knowledgable securities attorney. This will enalbe you to avoid criminal and civil liability concerning the offering.

The offering needs to be structured so that it is a private placement, and not a public offering. Because you are raising only $90,000, you are not advertising the offering, then your offering is not a public offering, because it conforms with the exemptions in Rule 505 and/or Rule 506, so long as the investor receives a prospectus and Form D is filed. I am assuming the investor is unaccredited (i.e not a bank, insurance company, broker-dealer, mutual fund, business worth more than $5 million, trust fund worth more than $500,000, married couple with assets more than $1 million not counting the house, life insurance,and car, or a couple who will continue to earn over $300,000 per year for the foreseeable future (do not rely on the last category due to the uncertain economic environment)). Even if the investor is accredited, he/she needs to get a prospectus anyway, or else they will not have access to all material information, and this is fraud.

Re: We are selling a percentage of our company

You should not use a note. A note is evidence of indebtedness between a borrower and a lender--not your situation. If you are a corporation, you would be selling stock to the investor. If you are a partnership or LLC, you should amend your membership agreement to note the investor's acquisition of a 12% interest. The agreement should spell out whether the investor has any voting rights or is just a "silent" partner. There are a number of other considerations as well. I strongly recommend you seek the assistance of an experienced business attorney to advise you on the best way to handle this.