My husband and I are starting a relationship with X company. The goal is to eventually invest in this company and for now, my husband will be in an advisory role. We have three different contracts to deal with the advisory role (referral fee, referral plus active role fee, and share compensation for the advisory role at the end of each role). To establish this role, we have been asked to make a three year loan at 6% int. rate at the end of which we can pull our money out or buy shares at 20% off. My husband and I opened an LLC to establish the first two contracts (referral fees). For the Advisory role and for the loan, should we establish that through our LLC or is it better to establish these as individuals (my husband name)? In other words, is there an advantage of drawing these two last contract as a company or as and individual?
1 Answer from Attorneys
This is a very problematic setup. In effect you are "investing" through a loan without the ability to either secure the loan or convert the loan to equity in the company. You will be at the mercy of the company at the end of the three year term. In addition, the use of an LLC, though sometimes advantageous, may present a problem in trying to enforce your rights.
It sounds like you will be investing a significant amount of money and valuable time and you should use a startup business attorney to review the matter. It just doesn't make sense to enter into such a complicated deal and expense significant resources without proper guidance.
Please contact me ASAP.
Roman R. Fichman, Esq.
www.TheLegalists.com │ @TheLegalist
email: Info (@) TheLegalists (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. No intention exists to create an attorney-client relationship or any other special relationship or privilege through this post. 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.
Related Questions & Answers
I am going into business with 5 others. We all live in different states, and are... Asked 4/16/15, 10:45 am in United States Connecticut Business Law