Hi, Mark, Kohler here with another tax and legal tip now
I want to talk about how to treat your partner as a lender now
really that is kind of a trick title to this video because
Generally a partner is not going to be a lender now sometimes you might have two or three partners and one of them
Loans some money to the partnership and you pay them off and although the partners agree to it
but if you're trying to treat a partner as a lender, and that's how they're
Participating in the business that's not allowed let me explain you can't say to someone hey
Why don't you loan me a hundred thousand dollars and I'll pay you eight percent and two points
But you'll get thirty percent of the profit on the back end, okay?
you just made them a partner remember a lender cannot be a
Partner if they're part of the note is them getting a piece of the action?
You you may call that a participating note. The irs calls it apart
The court system calls it a partner if you get in a lawsuit
They are now a partner and subject to the lawsuit
They cannot be getting a piece of the action as part of the note stay away from it
Don't do it now with that said what I love the money people in your business to be a lender. Yes
And for those of you that are a lender loaning people money
I want you to watch this too
And that's very very important because having someone loan you money to expand your business, or do a real estate project
That's great, but call on the lender. Don't call them an investor. Don't call a partner watch my other videos on those topics
They can't be a partner or an investor. If they're a lender a lender loans money, and there's certain procedures
We need to follow to make sure you document
It properly let me go through four tips that's going to help you out and could save you thousands of dollars
On a potential lawsuit or problems with the irs
Number one have a promissory note. Have a document. Not something in an email
Not written on a napkin at Denny's in the middle of the night and certainly there should not be a partner in your lLc
Because they're not a partner. They're a lender
They're loaning money and getting interest
So have a promissory note number two this promissory
Note should have terms this should be a healthy one or two pages long at least
It's going to talk about how much you're borrowing. What is the interest rate, when are you making payments?
when are the Payments due who are the parties to this agreement all of the terms related to the
Relationship should be set forth in the promissory note
And make sure it's reviewed by an attorney especially if you are the lender those watching this video for those borrowing the money
Having it reviewed is just as important you want it clear concise and to the point. So there's no misunderstanding going into this relationship
Number three the penalties and default make sure that the promissory note is
Extremely clear on what happens if the borrower doesn't make payments
Maybe you making the payments, but make sure it's clear. Is there a penalty of three or five percent?
When's the penalty due is there interest on to Penalties and what happens if you can't make the ultimate payment back
What's to happen then? Is there a lawsuit is there?
Collateral which we're going to talk about next is the note secured by something these are all issues you want to be
Very clear about and have them spelled out in the promissory note number four is collateral
What is the collateral a good promissory note should be based on some sort of collateral? Is that a trust b?
note tied to a piece of property is a
lien against a car a business
Or is it just a personal guarantee against the individual that promises to pay it back
I don't know make sure it's clear again this can prevent a potential lawsuit which could be
So much more expensive than the note itself have security and make sure it's clear
And if there is some sort of lien is it UcC recorded is it recorded against the property at the County level make sure you
Securitize the note by recording the lien against whatever that collateral is now one last note
And that is security laws not the security that might be the collateral of the note. I'm talking about this state or federal
sec
This is the issue of you taking a lot of notes to build up capital for your business
And they're just a bunch of promissory notes
Maybe personally guaranteed by yourself the sec has generally classified those as a security you could be in breach of security
Which means you're going to jail if you default on a bunch of those notes not good
But a note that has a security or collateral piece to it is exempt from sec law
Generally, so what I want to encourage you to do is if you're taking notes from a lot of different people
And you've got a lot of lenders involved in raising a lot of capital get a consultation with an attorney that understands
Understand securities law so they can protect you in the case of a potential lawsuit or loss
You do not want to have a criminal issue or security issue
If you're not able to pay those notes back, but again in some having lenders having partners having investors is great
I want you to succeed at your business
I want you to get money to maximize the value of your business and grow it just do it right document. It properly and beecher
Thanks so much for watching it if you found that helpful
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