I'm in college and I want to invest in a friend's business, What are the concrete steps I should take?
You being in a college does not make a difference. I believe you need to make sure that your investment is secure.There are several ways to do that however mind this that none of them would ensure a total security for your money. If the business fails there is large possibility that your money goes down the drain.You can draw up a contract where you and your friend agree to certain terms and get it registered.Also, you can invest and have a share in the company. Shares or debentures will be issued in your name.
I want to pool my money with friends and invest it. Do I need any type of license?
Normally, no. But it also depends on your jurisdiction (where you live). I am in the US so can only speak for our conditions.You do not need a license to invest or trade your own funds. You only need licensing if you're trading other people’s money and they're paying you or your company for this service.There are clear legal exceptions for situations like yours where you are managing money for friends and family, so you wouldn't need a license. You can never solicit funds from anyone who is not friends and family or you start breaking rules and laws and can even go to jail. So be careful.So that's licensing covered.Now to some other legalities. To pool your money with one or more friends you are entering into a partnership. This can be done with a handshake, but for everyone's benefit, please write everything down, and have all parties sign it. This avoids most future disputes. Make sure you cover initial investment, purpose of the partnership, how profits and losses will be allocated to each partner, who decides what, who is the managing partner, how and under what conditions the partnership gets dissolved, and anything else that is relevant. That's all you need. You now have a partnership with conditions that will hold up in court if necessary.For tax purposes, and by that I mean in order to pay less of them, you might want to be more formal and actually create a company for the partnership. This will also shield you as a person and your personal assets from any liability the partnership may have in the future, provided you operate it properly as a business entity.Garret Sutton has a great book that covers these matters thoroughly. Worth the tiny investment so you cover all your bases.
I have friends who want to invest in my startup (C Corp). I definitely need a lawyer. How much would it cost me to prepare all the required documents?
There are three levels of legal service possible. What lawyers are professionally encouraged or even obliged to offer is full custom service, where they adapt every document to your special need, often negotiating with the lawyer from the other side on every deal point. This can get into the $5,000+ level quickly on even a basic financing.Some lawyers will be happy to use a basic template (every lawyer has their own) for the transaction, with possibly a couple of tweaks. This only works if the other side doesn't have a lawyer pushing for customization for them. As friends they may not. In this case be careful to instruct your lawyer that you want to be fair to them, not push for the best possible deal for the company/you, which is what the lawyer is supposed to do. The cost here may be around $1,000 for a financing.Or you could just buy legal templates online for a few hundred dollars, in which case like anything else you buy online you can find good and bad ones. (We have been experimenting with doing this for selected clients.)The other thing to consider is that legal problems are cheaper and easier to fix the sooner you start to work on them. If you haven't had a good corporate lawyer involved in the registration of your company, you may want to get them to review all of your documentation as part of this financing. That would cost you maybe $2,000 or so for a really good one, experienced in small growth companies, who is working with sensitivity to your cost and using great internal templates they have developed.While this may be more money that you planned to spend on this, it may be worthwhile.P.S. And of course consider using IncMind as a way to keep all of your company's legal paperwork straight for yourself, and your lawyer. It will help you save on your bills.
If I want to invest in a business/company that my friend is starting, what kind of return and terms should I ask for?
If I want to invest in a business/company that my friend is starting, what kind of return and terms should I ask for?One question you might want to ask yourself: What happens if this money is gone because the business failed? How would you feel about this?I’ve been in that situation. I learned that most businesses fail, even if my friends started them.Therefore, the key question for me in this type of situation is: Do I believe in the business this person wants to start? Or do I want to help my friend and I don’t really care about the business?If I mostly care about the business aspect, I will very openly tell my friend so, and I will negotiate a business deal (maybe with a friendship discount on the terms, but clearly declared if so). Such a deal could be, for example,I buy a percentage of the company and I participate in the profits;or a loan to the company with an interest rate depending on the profits or the revenue;or any other favorable deal for the company where I give them an advantage now (preferably in a way which is not risky or expensive for me) and get back some bigger advantage later (preferably in a way which is much better for me than my investment)If I mostly want to help my friend, I will just lend them the money (and probably write it off immediately if we want to stay friends - if anything comes back, I consider this pure luck).