ABA Family Legal Guide

Forming and Operating a Small Business

Starting a Business

Financing a Business

I think an investor may be interested. What do I need to consider?

If you're borrowing money, you're retaining full ownership of the company. Once the loans are repaid, you have no further obligations to the lenders. If you have investors, on the other hand, you're giving them a slice of the pie. You don't have to repay what they put into the business, but you'll have to share the profits with them.

Under the law, investors who are actively involved in the business (active investors) generally have a different status from investors who are putting up money but not taking part in how the business is run on a day-to-day basis (passive investors). The section of this chapter entitled "Types of Business Organizations" will provide you with more information about how to structure your business according to whether you have active or passive investors.