Questions

If a new partner is going to buy into our business, should he give us the money as shareholders or should he invest the money into the business?

The new partner wants to buy into our business. Now since we're selling him company shares, we're not sure whether we need to receive the money to our personal account OR invest it into the business! Is there any general rule here?

2answers

Yes, it depends on what the goal is.

If the company needs the money to grow, for example, then the company would issue new shares and the money would go into the company. Your ownership would be diluted but you'd own a smaller piece of a more valuable company.

You also need to consider what the investor thinks is going on. Does he believe that he's 'buying in' to your company so you can 'cash out' in part. Or does he believe he's helping to fuel growth?

Watch this video I made on this topic a few months ago.. https://youtu.be/1EjKjSAd1F8

If you'd like to discuss your specific situation, just arrange a call.

Thanks

David C Barnett


Answered 2 years ago

Depends on type of business entity you're using.

If it's a sole proprietorship, you can do anything you like.

If it's any other form, receiving money personally will nullify your business. Read up on mingling personal + business money.

And as always, this is a question for you tax preparer.

To be safe, just receive the money as if someone made a payment for goods + services to your business... so... person would write the check, just as if they were buying from your business.


Answered 2 years ago

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