AboutRonald J. Cappuccio, J.D., LL.M.(Tax) Expertise I have extensive experience in negotiating emerging business contracts and agreements, joint ventures, limited laibility company buy-sell agreements and buying and selling businesses. My approach is from a legal, tax and business prospective gearing my negotiations to practical solutions rather than merely drafting impractical documents
Experience I have have been an attorney since 1976 emphasizing business and tax law issues. I am an adjunct law professor in negotiation and alternative dispute resolution.
Organizations American Bar Associtiation
New Jersey State Bar Association
Camden County Bar Association
I am asking this question for a member of my family. They are interested into "buying into" a small business; in short, their aim is to invest 50-75K into a currently operating small business with a constant return. They hope that a portion of profit that the business draws in acts as this "constant return".
In a way, it is like a simplified corporate bond. They do not wish to take an active role in management, and I believe they may not like the idea of being financially responsible within an LLC or as a partner. They have no wish to establish or run a business themselves.
I have suggested a peer to peer loan at a set interest rate and payment schedule at one year or less (as opposed to three or more). They are not entirely excited by this idea.
What do you recommend?
Thanks!
Answer Doug:
Tell your family member to look elsewhere for a "safe" investment. Most small businesses fail. Even if this business turns our to be successful, unless your family member is going to take an active role in the business, he could be the subject of a "squeeze-out." This technique is varied, but the active owner can simply raise his own pay and benefits and not pay your family member.
I suggest an investment with more protection. Nevertheless, if your family member is insistent upon the investment, make sure he has a good tax and business lawyer to negotiate and represent him in the entire transaction.
