Is there a way to legally set this up?

Asked over 2 years ago - New York, NY

I want to start a business with my four younger siblings. They are all minors, I'm the only one over the age of 18, but I'm having major debt problems at the moment. I'd rather get paid a salary than own equity.in the business that a creditor could potentially take.

So I want to know if there's a way I can somehow give my four minor siblings 25% equity each while I run a trust or some other legal entity which gives me the power to control their portion of the business until they reach the age of 18? Any advice would be greatly appreciated, thank you.

Attorney answers (3)

  1. Steven J. Fromm

    Contributor Level 20

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    Answered . Your plan will not work. Whether you recieve a salary or own the business creditors can garnish wages and seize assets. Involving your siblings is not a good idea for various reasons. You really need to sit down with a business attorney in a face to face meeting to explore your options and your creditor problems. That is the best advice that can be given to you. A general forum like AVVO cannot give you what you really need.

    you are borrowing money from them or they have doubt as to whether you are a legitimate buyer, they want to see your creditworthiness and income generating potential. Tax returns give them clues about these things.

    Hope this helps.

    Please remember to designate a best answer to your question.

    Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website for more tax, estate and business articles is www.sjfpc.com.

    LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia... more
  2. Matthew Aaron Wiley

    Contributor Level 10

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    Answered . Attorney Fromm provides the best and most important advice we could give you. Your plan is bad for a variety of reasons and really wont work. There is a possibility of doing it but I doubt it will accomplish what you want and have significant legal costs.

    A child cannot sign incorporation or organizing documents of an organization. But they can receive a gift of a portion of a company. Unfortunately it is not a gift unless you give them the ability to control said item which is exactly what you do not want.

    Even if you gave them control subject to their guardian having the right to sell the property you face a second issue. You want to have them pay you a salary. As the guardian of a child who owns a company you may not be the best choice as an employee (or manager). If the guardian makes an incorrect choice they would be breaching their fiduciary duty and would potentially be personally liable.

    Also as Attorney Fromm alluded too how will your new company get credit? Usually new companies are required to be backed by personal guarantees. Your siblings are too young to provide such guarantees.

    Also as guardian of the child now that you gave them an asset (the company) they have a duty to diversity their funds. Is your company a good investment for them? Does it expose them to liability as they get older?

    The last but arguable most important line is you need a carefully drafted operating agreement to protect all parties and ensure that the your objective is accomplished.

    If you were to finely toe this line, you are the most qualified manager, the company is a good investment, you give them a properly drafted gift, the operating agreement is carefully structured it would cost you easily 10k in legal fees (probably more). Now if you had 10k to spend on attorneys I doubt you would be looking to setup this type of structure.

    Simply put this type of strategy is not economical or appropriate for your situation.

    Disclaimer: The foregoing answer does not constitute legal advice, is provided for informational and educational... more
  3. Dana Whitney Atchley

    Contributor Level 17

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    Answered . I will say first off that you must consult with competent local counsel with experience in business law and trusts and estates law (at the least) before you attempt anything of this sort. As the other answers suggest, you would be a fool to simply rely on answers you get for free here from strangers you don't know and whom you haven't hired to advise you.

    That being said, although it would be difficult, complicated, and potentially expensive to set up something along the lines that you're considering, it could possibly be done. However, the likelihood of success will be crucially dependent on all of the facts and circumstances including such details like the particular business you want to set up, your available capital, any other potential investors, anyone who could be trusted to act as an independent, but friendly, trustee for your siblings' interests, and so on.

    The bottom line is this, though: you could have full control over the day-to-day business operations without being an equity owner and could have protection against being fired or dismissed from your position with the company, the business could be structured to make it unlikely that your siblings would divest themselves of the business and sell it to a stranger whose interests were antithetical to you, but you would have to give up ultimate control over the entity conducting the business itself and that control would have to be exercised by someone independent from you with the power to act if necessary in ways contrary to your own interests. The key point here - and there is no guarantee that it would work with your particular circumstances - is that you cannot control what the equity owners can do, you can only have control over the operation of the business itself, and even then you must operate it for the benefit of the equity owners, not for your own personal benefit.

    Any deviation from the plethora of limitations you would have to abide by could easily result in one of your creditors claiming that in substance the business is really owned by you and seeking a court order permitting that creditor to seize the business and sell or liquidate it to satisfy your debts. In closing I want to reiterate that what you intend to do is fraught with peril and upon a fuller analysis of the the facts it may turn out to be impossible to accomplish your intentions.

    I would be more than happy to discuss your circumstances and plans in more detail; if you're interested you can reach me by email at dwatchley@newyorktaxcounsel.com.

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