How do i convert a loan in to a limited partnership

Asked over 2 years ago - Greensboro, NC

a friend owes me some money but needs to borrow some more but this time i want him to give me part ownership in his company how would we go about handling this

Attorney answers (2)

  1. Michael G. Gorenflo

    Contributor Level 9

    Answered . There are many questions unanswered in your question that need answers to even get started. You mention "limited partnership" in the heading, but say "company" lower. The answer is different if he is a sole proprietor, if he has an LLC or if he has a corporation. The best answer I think you can get here is...IF IT IS WORTH PROTECTING THE MONEY YOU ARE OWED AND YOU WANT TO MAKE SURE YOU WILL NOT ONLY BE A PART OWNER, BUT KNOW AND UNDERSTAND YOUR RIGHTS AS A PART OWNER WHEN YOU GIVE HIM MORE, MAKE AN APPOINTMENT TO HAVE A CONSULT WITH A QUALIFIED BUSINESS LAW ATTORNEY IN YOUR AREA.

    Sometimes the value of the amount at risk, determines the level of detail required...not to say that things shouldn't always be done "right", but if I were owed enough money that my friend would need to give me an interest in his business, I would seek out thorough, detailed representation.

    Good Luck...

  2. Robert John Murillo

    Contributor Level 20

    Answered . You have a few options. Any of these options require the advice of an attorney, if you really want to protect your investment.

    You could take the loan (prior and new) as a secured debt. For that you would need a promissory note, security agreement, and file a UCC1. You could then have a warrant that allows you to get X percent of his company interest. This may be preferable to just straight equity because this has considerably more risk. Moreover, assuming you will not actively participate in the company, you also have securities issues.

    Regardless of the possible ways to structure this, my first point remains true, namely that you need a good business attorney to advise you on the options, discuss the legal issues, and the possible tax ramifications. Good luck.

    This answer is for informational purposes only and is not legal advice regarding your question and does not... more

Related Topics

Small business LLCs

An LLC (limited liability company) is a business entity that has elements of both a corporation and a partnership (or sole proprietorship).

Small business partnerships

A business partnership is an arrangement whereby parties enter an agreement to cooperate for their mutual benefit.

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