- May 25, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Seeking Advice on Investing in Sibling’s Business
I really hope this is the place to ask. If not, I’d appreciate if someone can point me in the right direction.
My sibling has asked to borrow a good chunk of change. They are expanding their very successful business.
I’ve loaned money to them before, no problems at all. They are saying that they will pay interest when they pay it back, so I’m in no way concerned that the money won’t come back.
Here’s the question: I would like to invest in their business rather than just give the money.
How do I do this? What does this involve?
I cannot speak to my financial guy about this yet. But I have to make a move in the next 24-48 hrs or so.
INFO: I know they will make good. The last time I gave them money it came back in the time they said and with interest. And it was much more. I know there are TONS of terrible stories about this kinda situation. Many I’ve read on Reddit. Thank you everyone for the concern. This is why I love Reddit – people who you don’t even know will look out for you. Thank you!
ONE MORE THING: The 24-hour limit was just because I have a tendency to take long on things, and this was more for myself to get it done. They were pressuring me at all.
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****** just grabbed a
The best advice when it comes to mixing business and family is don’t.
My personal choice is to not go into business with anyone you love. Give them money, but never invest or loan. You are turning your relationship into a business deal.
Ask your brother if they will sell you a share of the company at x% and get an attorney to make it legally binding. If they don’t want to do that, charge interest under state usury rates.
Why can’t you speak to your financial guy about this? Why do you only have 48 hours to make a decision? This seems hasty.
You ask them if you can invest and if they agree they issue you shares (there’s a lot of different types so you would need to agree on it). They would either need to be set up on a system to do this or have their lawyer do it which can be costly if they don’t have the right type of lawyer on retention. Then you sign an agreement and they give you some level of ownership/shares. Depending on the type of shares determines when you get paid.
So many red flags here. OP, please don’t do it.
Tempting! I am not in that position. But I would have to ask myself which one am I willing to let go of if necessary: my sibling or my money?
The business answer is, if you are going to “invest” or give them a loan, there should be all kinds of paperwork involved. Rate of interest, terms of the agreement, when they will repay you, etc. And if they fail, you will sue them and take their assets.
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If you aren’t willing to sue a family member, then you are just giving them money and hoping it comes back.
With expansion comes risk, nothing is guaranteed. Any financial / personal relationship is easy when the gettin’s good, you haven’t even seen what it’s like when things are bad. What will happen? Will you take priority to other investors? Decisions will be made and some people will be left holding the bag, im willing to bet that they put themselves above you when it comes to ensuring finances are squared away.
You need to ask yourself if the gains you get from this business are that much better than what you can get elsewhere. How much money are we talking? Last I checked T-bills are paying ~5%, which is a very safe investment – are the potential gains that you would get by investing with family worth the risk of potentially souring the relationship?
Are you already maxing tax-advantaged investment space? That space is limited, and should be your priority, namely because you would have control over it.
The comfort and security of having good relationships with family and friends is worth so much to me that I couldn’t imagine an amount of money I would risk to jeopardize it.
Never loan substantial money to family. If the worst happens, your relationship will change. Just because he paid you back before, doesn’t mean anything now. Why can’t he borrow from a bank? Lawyer up, and get everything in writing. The horror stories on family and money on Reddit are real.
“They’re expanding their VERY SUCCESSFUL BUSINESS”. If it’s so successful, why are they coming to you for money…AGAIN!
ask to become an equity partner.
you family member will have to have their business evaluated and then you will learn how much their business is actually worth.
ex: if the business is worth $1M and you invest $100,000, congrats you now own 10%.