Investing in a family business? Form a separate entity
I counsel people going into professional practices, and I tell them this often: If you are buying property, purchase the property as a separate entity. Having a separate entity (an LLC or a Subchapter S Corporation) for the property keeps the property out of any issues with the debt of the business itself. You can also move the business and keep the property, renting out the space to some other business.
The separate entity for property idea might also be good if you are asked to invest in a business by a relative, child, or friend. You could offer to buy (or join in buying) the property, and keep out of any potential problems with running the business. A recent online newspaper article from Fort Myers, Florida, has more details and additional examples.
Remember, I am not an attorney or accountant and I’m not giving you advice. Check with your attorney and CPA before entering into any business transactions.
Better yet, don’t invest at all. And try to avoid borrowing from family and friends to start your business. David Gass of Business Credit Services, Inc., says:
Borrowing from family and friends can be good for some. However I have seen most business owners get into fights or trouble with borrowing money from someone close to them. If you are someone that lends money to a family member just assume you gave it away. You can’t expect to get it back. You are usually the last person they think of when paying bills because they believe you will wait. This causes stress on the relationship. I would recommend using a site like virginmoneyus.com to manage the paperwork of the loan if you want to borrow from family and friends.