The start of a new business is an exciting time, full of hope, uncertainty, and dreams, but it’s also the time to seek the advise of an attorney who understands business law.
That’s because no matter how promising the business idea is, nobody really knows for sure if it will succeed or not. Many new businesses fail, but a few succeed, and a tiny percentage can become very successful indeed. This can be a roller coaster ride for the people who were there from the beginning, but it can also cause problems.
Why? Because some new businesses never nail down who is an investor or a creditor in the early days. The founders don’t get clear business law advice, and that causes trouble when the company starts making or losing money. If the business is making a profit, the people who put money into it in the beginning may want to share in those profits as an investor. The founders may, on the other hand, see them as merely creditors who loaned money to the company, and that they are only owed their principal and interest back. If the business is losing money, the natural impulse is for the people who put money into the business in the beginning to view that not as purchasing a share in the company, but as a loan that they want paid back promptly.
It’s critically important to properly document any capital contribution to a new business right in the beginning. If that doesn’t happen, and a dispute arises about how to categorize a capital contribution, then the business needs legal counsel to examine the evidence and determine the intent of the parties. this cold be a lengthy and costly process which could have been avoided if properly documented from the beginning.
If you or an associate needs expert legal advice about how to handle capital contributions to a business, contact Grissom Law, LLC at 678-781-9230.
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