What if I want to have “passive" co-owners?
If you decide to seek funding from investors who aren't actively involved in running the business, you'll face significant legal ramifications, especially with federal and state securities laws. These are designed to protect investors and limit fraud by people seeking investors.
The securities laws apply to the sale of any “ownership interest” in a business where the profits are expected to come from the efforts of others. Under this broad definition, virtually all types of equity or debt ownership interest in a small business sold to people may be securities. For this reason, you should not contact anyone about investing in a business without fully reviewing your investment plans with a securities lawyer. This includes stock, debentures, and other similar corporate debt instruments, limited partnership interests, limited liability company membership interests, and even general partnership interests, where one or more of the general partners does not have the expertise (or authority) to participate in the management of the business.
>>What are some ways of securing capital?
>>How about using my home equity to get funds?
>>What are the legal considerations in getting loans from family and friends?
>>What is a promissory note?
>>What are some legal considerations in loans from financial institutions?
>>What about my spouse’s assets?
>>Are government loans available?
>>What about help for women and minorities?
>>What are the legal considerations in getting contributions from others?
>>Legally, what’s the difference between active investors and passive investors?
>>What if I want to have “passive" co-owners?