Legal Considerations in Using Other Peopleís Money to Start Your Business

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Investments into a new company may take many forms. When the individual has been targeted to become a member of the business, this investment is usually added as an asset or a portion of the company interest or shares are provided in compensation. It is when this is not the case that the matter may become complicated.

The person or group may want a return on the investment in certain conditions, in a time frame or through other means. While the money may be necessary to start the business initially, it may be critical that a contract is drafted for the monies garnered in this manner.

Those in the business world have explained that the best source of funds is through others that have it available. Through an initial investment into an establishment or a facility, it may have enough momentum to progress to the point that revenue starts accruing. As long as there is an understanding in place, the investor already knows when he or she will receive the return on the investment. Without any form of contract or agreement drafted or setup before the money has been lent, the borrower may find himself or herself in a legal battle over the profits at a later date. Other legal concerns may arise through how much must be allocated back to the person that invested.

Secrets of Business

Many that have gone through starting up a new business or in branching out have discovered that one of the greatest secrets is to use other peopleís money to do so at the beginning. Most of the top revenue producers have done this, and they have become successful in their companies. Where the money goes it up to each new owner, but it has been recommended to make the funds work for the person. In doing so, it is possible to increase what has been borrowed or invested. Another route could be to allocate interest, shares or profit-sharing for the acquired income. A clear contractual agreement is necessary to keep the terms concise and enforceable.

Through persisted use of othersí money, it is has become a common practice that is considered both acceptable and ethical for those in the business world. This is because it is possible to leverage the money other persons provide to the benefit of both or all included parties. In order to provide a greater amount than what was borrowed, it has been recommended to place what has been garnered into high-yield investments such as real estate, programs and establishments so that a larger return is gained than what is necessary to pay back the person that lent the initial income. While these other possibilities are out there, some decide to just start the business with the loan and attempt to obtain enough revenue that the principle and any interest may be repaid as soon as possible.

Benefits of Borrowing

Any amounts that are borrowed are often assigned to the business when they are used for growing or starting the company. This means if the debt collectors need a payment, the claim is not against the personís finances. The monies garnered are also available to make money. It is often difficult to obtain a loan through a financial institution, and another personís income may be the best option for these funds. In some instances, it may be possible to obtain financing from the federal government. This could be through a loan, grant or other routes.

Possible Sources of Othersí Income

There are other potential sources that may be tapped when attempting to obtain income to start a business. This could be through training programs, classes and when contacting persons that are looking to invest in a new venture. There are often groups of wealthy individuals that are on the lookout for something new and potentially worth the time and energy in fronting money for a later payoff or profit-sharing. It is best to ensure there is a business plan ready for these persons, as their time is often valuable and if the company is not fully realized on paper, it may not be put together in time for opening.

Business Lawyers for Legal Considerations

Because there are a fair amount of legal complications and possible consequences, it is important to hire a business lawyer. If a contract is needed, these legal professionals have the knowledge to ensure the terms and clauses are valid and clear. They may also know if the transaction in borrowing money is legitimate.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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