I'm interested in investing in a new start up business. However, I only want to be a silent partner.
Can this be done without my name being on the lease, bank accounts etc.
Also what is a fair or is there a standard a silent partner should ask for? For example of the business is asking $40,000 and I give them $10,000 is it fair to ask for 25%.
I was thinking 25% and ill be partner for life or 25% until loan is paid back then down to 15% for life.
Is that fair? Comments? suggestions?
Based on your question, I am hoping you have the services of a good CPA. Your questions are essentially commercial, not legal. Issuing some of the secutities you mention are very complicated. What you call "for life" (i.e. ownership) is much simpler. Make sure you don't invest with someone who forms their corporation or LLC online. You will need some advice from an attorney on some very fundamental matters.
Further, this silent partner request which I see a lot on Avvo - why? A shareholder's liability is limited to the amount of the investment so who cares who you are?
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
4 lawyers agree
Mr. Doland's advice is, as always, right on target. If you invest in a correctly developed entity like a corporation or LLC, your risk is limited to the size of your investment. There is certainly no "standard" for a silent partner -- it is whatever that investor agrees with the other investor.
As Mr. Doland says, a good accountant can be enormously helpful in a situation like this.
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2 lawyers agree
First, you need a good tax and business attorney to review the LLC Operating Agreeement to make sure you are protected. Typically, the majority owner will have his lawyer prepare the agreements and he will be protected. Also, you may find that some creditors (particularly banks) will require you to sign a personal guarantee. That could expose you to substantial additional liability. Also, some States will make you personally responsible for Sales Tax and employment taxes even though you are not going to be a check signer.
Also, as commented by the other attorneys, you will need a good CPA not only in the formation stage but to make sure the financial matters are being done correctly.
Good luck in your business!
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1 lawyer agrees
Contracts / Agreements Lawyer
There are many scenarios that could structure your arrangement. It depends on what you agree to. You will also want to be sure all the required securities filings are made and that you are covered in your investor documentation as well as in the LLC agreement. It is not uncommon to invest in a company in exchange for a convertible note that is repaid, while also granting you an interest in the company . You really will need to consult with a CPA and an attorney prior to signing any documents.
As far as your name goes, as a creditor, you don't need to sign any leases etc. But as a Member, you will need to authorize the manager to enter into leases and sometimes landlords will request personal guarantees.
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