If your business is at a stage when there is the need for additional capital to be invested for it to grow, then you may be on the look-out for people to invest in it.
For this, silent partners can be a great idea. Silent partners usually don’t want anything to do with your business or in the taking of everyday decisions and generally involving themselves in the day-to-day running of it. However, what they are looking for is a significant return on their investments.
When you take on a silent partner, you can expect him to want a better ROI than bonds, stocks or mutual funds. He is taking on a risk by investing in your business and it is not wrong for him to expect substantial returns. If you want to know safe ways in which you can bring on a silent investor into your business, here are 3 ways to do just that.
1. As a real business partner
There are many advantages in bringing him on as a real business partner. Not only do you not have to worry about the SEC registration problem, the person will be able to share in on the profits. What’s more, you may be getting your business a very good partner which will help it grow better in the future.
The problem with bringing on the investor as a partner is that then you will have to involve him in the decision-making processes as well as the voting, if any. He will be treated as a ‘’partner’’ in his full rights so that he will not be able to say that he had no idea what was going on later on. Basically, he will be an owner of your company.
2. As a lender
This is a really great way of taking on a silent investor. You don’t have to treat the investor as a partner. He has a fixed rate of interest that will take care of his investment in your business which works out in both your favours. The lending situation is really good if you need capital but have no interest in dealing with the SEC.
In case you are thinking of using the investor as a lender, make sure that you have a promissory note that is valid from the legal perspective because that will help both of you deal with problems if they arise.
3. As an investor
Some people may not be happy with just a fixed rate of interest and they may want to partake on the profits of the company. This is when bringing in an investor by following the rules laid down by the SEC is a good idea. He will have an equity position in your business.
It is always a good idea to sit and talk at length with your attorney before you bring about a silent investor. Your attorney is the best person to advice you on how you can protect yourself and your business in the long run.