I have a large circle of friends and over the years I borrowed money from them and also lend them money on occasions, so much so that I vouched for a friend when ever he was borrowing from someone only I knew. I mostly paid interest, likewise did not refuse when someone paid me interest for the money they borrowed from me.
I am wondering if I can formalise these kind of transactions so as to conduct them on behalf a business entity. The reason being, I am interested in possibly making this as my career.
Can I start a business entity for conducting these types of business activities - providing credit and accepting deposits? If so what type of Business Entity would that be.
Am I required to have any specific educational qualifications?
Can I run such a company on my own - out sourcing accounting and tax related help until such time my business entity is capable of hiring personnel.
Thanks for the help, your advice is greatly valued.
1 Answer from Attorneys
Re: Banking/Business Law
You didn't provide a whole lot of information, but my impression is that your approach is naive and uninformed, and therefore you may be at risk of losing a lot of money. Also, borrowing and lending businesses are regulated. If you accept deposits you may be a bank, and if you make loans secured by real estate you need a real estate broker license. Other laws including the Constitutional prohibitions on usury will apply.
One possible approach would be to set yourself up as a real-estate (trust deed) investor. Talk to a trust deed broker with a license, or take the necessary courses and become a broker yourself. If you're thinking of a career, this may be your best bet. Contact the Californis Department of Real Estate for particulars.
On the whole, these business activites require a good deal of financial and business-world sophistication as well as ongoing legal advice. I would suggest forming a close alliance with a business, real estate or banking attorney.
I also suggest that, if you don't already do so, that you obtain collateral for your loans, and conduct all your transactions with written documentation that has been reviewed by your attorney.
You must avoid taking money from anyone that might be characterized as a 'deposit' or an 'investment' until you are thoroughly familiar with, or competently advised on, the banking and securities laws. Read, for example, Financial Code section 102 which makes it unlawful for an individual to transact a banking business as defined in that section (only corporations incorporated for that purpose under Financial Code sections 350 et seq. may conduct a banking business). Similar laws affect accepting money as an investment.
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