Someone wanted to invest 30k into my landscape company for 5% return, now I’m not the smartest guy out there and someone is free to correct me if I’m wrong but shouldn’t that 5% be until the loan is paid off and not until I give the company up
Again I’m very new to this so I could be looking at this horribly wrong
Just curious, you seem to know your stuff, would the investor be entitled to profits? Would 5% stake automatically entitle them to 5% of profit?
Or does the investor only make money if the business is sold and he earns out more than he put in? This type of arrangement has always confused me for small companies like this
They are entitled to 5% of dividends. If OP owns 95% of the company, he decides whether the company pays out any dividends so finally it’s up to OP. But all of these matters should be clarified before they sign any documents.
If any owner takes a draw, all owners are entitled to a draw.
As others have answered, yes. The investor only makes money when the business does and what I haven’t seen anyone mention is, depending on how the business is structured, partnership/llc/s-corp/c-corp the investor can share in liability should the company get sued or the company is forced to declare bankruptcy.
There’s a lot to it and it all depends on how the company is structured and operated and even how the ownership is setup assuming they have a lawyer draw up the contract.
It entitles them to x% of earnings attributable to shareholders which is technically different from operating profit, assuming that is what you meant by profit.