What is the best way for relative to help fund business start up?

[Greaz]

Please excuse grammar, Im the muscle of the operation not so much brains!

Essentially I am in the process of starting up construction company. I've registered with companies house (Ltd) & set up a business account.

My brother has a very well paid job and has offered to "front" me the money to get properly up and running. He's stressed that the business is 100% going to be mine & he isnt desperate for the money back until I'm turning a profit. He also isn't interested in charging any interest, he only wants what he gives. The question is what would be the best/legal way to get the money into the business.

I.E
Would a "gift" to myself that i can then put into the company be the better option or would that make repayments a minefield?
Or
Is it better to get a formal contract written up and him loan it directly into the business, in which case are there any taxes/fees to be expected?

I appreciate this is probably a no brainer question for people with the knowledge so apologise in advance.

Thanks

 

[Scalloway]

I would get him to lend the money to the company . You don't have to pay interest on it. I would recommend getting a written agreement.

 

[Daybooks]

I would get him to lend the money to the company . You don't have to pay interest on it. I would recommend getting a written agreement.

I would second this with extra emphasis on the written agreement.

 

[Greaz]

Thanks for your replies, is it literally as simple as a contract written up and transferring or Is there any red tape regarding HMRC/Taxes & fees.

I assume by doing this it makes it easier to repay also as its all accounted for within the paper trail?

 

[Daybooks]

Thanks for your replies, is it literally as simple as a contract written up and transferring or Is there any red tape regarding HMRC/Taxes & fees.

I assume by doing this it makes it easier to repay also as it’s all accounted for within the paper trail?

No red tape regarding HMRC, taxes or fees. Cash flow in my experience is what makes it easy or otherwise to make repayments rather than the existence of a contract. The reason for the written contract is to set the terms and conditions. Families never fall out do they?

 

[Paul Kelly ICHYB]

Whilst everything is nice and rosey now and you have to plan for success, you must also ensure that you are both protected and still talking in the case of failure.

This is one thing, however nice and supportive now, if you were to drop £20k/£50k of your brothers money, what would happen?

 

[Greaz]

Fully understand the risks of falling out/business failing. I appreciate your help guys. Thankyou! Exciting times.

 

[The Resolver]

One potential problem if the monies are loaned to the limited company is that on failure to repay he can take action against the assets of the company. It also may prejudice seeking further funding/investment. A personal loan, with you in turn lending to the company. is easier to separate from whatever happens to your business. I think you also should be anyway drawing up an overall funding and growth plan for the company so the context of the loan is clarified. .

As @Scalloway and @Daybooks have said you must have a written Agreement to cover the loan. Clarity on repayments, interest (if none then this must be made clear) , that no equitable interests in the company's shareholding how to decide if a profit has been made eg clarifying the period and when to be assessed etc etc. You want the loan to be 100% separate from the purpose and in no way top prejudice your plans for the company's finances..

Happy to chat further on a free of charge advice call and give you some steers. C;lick the link in my sig and the first link on my site

 

[Greaz]

One potential problem if the monies are loaned to the limited company is that on failure to repay he can take action against the assets of the company. It also may prejudice seeking further funding/investment. A personal loan, with you in turn lending to the company. is easier to separate from whatever happens to your business. I think you also should be anyway drawing up an overall funding and growth plan for the company so the context of the loan is clarified. .

As @Scalloway and @Daybooks have said you must have a written Agreement to cover the loan. Clarity on repayments, interest (if none then this must be made clear) , that no equitable interests in the company's shareholding how to decide if a profit has been made eg clarifying the period and when to be assessed etc etc. You want the loan to be 100% separate from the purpose and in no way top prejudice your plans for the company's finances..

Happy to chat further on a free of charge advice call and give you some steers. C;lick the link in my sig and the first link on my site

Thanks Resolver, I'll be meeting with him in the next couple of weeks to go through the full plan/funds with him & May take you up on your offer whilst ive him with me to save being a messenger.


Its a very generous offer, thankyou.

 

[DoolallyTap]

Ask your brother just how much is he prepared to loose when it all goes wrong. Think of the worst case scenario. How much is upfront money, a few hundred lost may not hurt to much, but thousands? how will your relationship survive when you fail and cannot payback. Hope he has cash and is not borrowing to give to you. Don't do it.