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Question for the Money Doctors

Question submitted on May 24, 2021.

Question

Hello,

I want to invest in my relative's new start up business in Maryland. What should I consider prior to transferring money from my bank account to his LLC? Do I need to follow any IRS guideline?

Thank you.

Answer

Depending upon the significance of the size of the investment to you personally, that is a big decision to not take lightly.  First I am always leery of investing with friends and relatives--if it goes south, how will that affect your relationship?  Secondly, you will want to do some due diligence on the investment by reviewing the business plan and financial projections.  Lastly you will want to have an attorney review the any documents to ensure you understand the risk in which you are assuming--for example if it loses money, is your loss limited to the amount invested or is the amount at risk more than your investment?


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