Legal Question in Business Law in New York
I would like to invest in a new business my older brother wants to start up but I have a problem with him being in such horrible financial shape. If I do end up deciding to invest in the business I�m not going be running it day to day, my older brother is. He�s the brains behind the idea so I�m fine with giving him complete control over all business decisions. Plus I�m too busy to really run another business anyway I�m mostly there just to help finance the business as it�s starting out and if it does well I may invest more money into it later.
The problem with us going 50/50 on the business is that he has multiple large creditors that he says he�ll probably never be able to pay off. If we split it 50/50 or 60/40 or anything else wouldn�t his creditors just swoop in and take his equity essentially messing our whole business up? Am I wrong in thinking that the only way I can go into business with him while protecting both of our interests is for me to have 100% equity and then just pay him a salary to run the business? Or are there any other creative ways we can make sure his creditors don�t mess our business up by forcing him out or taking his equity/salary? Thank you.
2 Answers from Attorneys
Generally speaking though equity is fair game for creditor, the reality of reaching such equity is more complex. Nonetheless you must protect your interests as an investor and of the company. Your suggestion of paying a salary rather than equity is a safe solution for you and the company. There are some other ways of granting equity through options and or restricted stock which may also be appropriate and will give your brother the option of owning some equity.
If you will be investing a significant amount of money you should consult an attorney and have the attorney setup the correct structure for the company.
I would be happy to chat with you further. Feel free to contact my office at your earliest convenience.
Roman R. Fichman, Esq.
www.TheLegalist.com │ @TheLegalist
email: Info (@) TheLegalist (dot) com
t e l : 2 1 2 -- 3 3 7 -- 9 8 3 7
Disclaimer: This post has been written for educational purposes only and was not meant to be legal advice and should not be construed as legal advice or be relied upon. The post may contain errors, inaccuracies and/or omissions. You should always consult an attorney admitted to practice in your jurisdiction for specific advice. This post may be deemed as Attorney Advertising.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.
Generally speaking though equity is fair game for creditors, the reality of reaching equity in a small company and it being of value is more complex. Nonetheless, you must protect your interests as an investor and of the company. Your suggestion of paying a salary rather than equity is a solution. There are some other ways of granting equity that may be more protective through options and/or restricted stock which may give your brother the option of owning a piece of the company.
If you will be investing a significant amount of money you should consult an attorney and have the attorney setup the correct structure for the company.
I would be happy to chat with you further. Feel free to contact my office at your earliest convenience.
Roman R. Fichman, Esq.
www.TheLegalist.com │ @TheLegalist
email: Info (@) TheLegalist (dot) com
t e l : 2 1 2 -- 3 3 7 -- 9 8 3 7
Disclaimer: This post has been written for educational purposes only and was not meant to be legal advice and should not be construed as legal advice or be relied upon. The post may contain errors, inaccuracies and/or omissions. You should always consult an attorney admitted to practice in your jurisdiction for specific advice. This post may be deemed as Attorney Advertising.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.
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