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Sole Proprietorship and Investor

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Zwold

Junior Member
What is the name of your state (only U.S. law)? CA

I am becoming a wholesale car dealer in CA, and am setting up as a sole proprietorship. My uncle is going to help me finance the business (mainly help buy the cars) on an on-going basis. Is this allowed? Will I still be able to set it up as a sole proprietorship, or does it have to be a partnership. He will actually not be involved in any way with the business activities, but will just be an investor providing capital. Also, on his end, will the profits he realizes be investment income? Hopefully the questions makes sense, but I guess I’m just trying to figure out how all of this will work. Thanks
 


Antigone*

Senior Member
What is the name of your state (only U.S. law)? CA

I am becoming a wholesale car dealer in CA, and am setting up as a sole proprietorship. My uncle is going to help me finance the business (mainly help buy the cars) on an on-going basis. Is this allowed? Will I still be able to set it up as a sole proprietorship, or does it have to be a partnership. He will actually not be involved in any way with the business activities, but will just be an investor providing capital. Also, on his end, will the profits he realizes be investment income? Hopefully the questions makes sense, but I guess I’m just trying to figure out how all of this will work. Thanks
If he is going to come in as an investor you don't have a sole proprietorship any longer. Now, he can loan you the money and not take any interest in your business and you would still be okay.

The money he loans you will be a liability and you should have that documented in some formal way.
 

Zwold

Junior Member
Thanks for the quick response. I thought I had read somewhere that outside investors are able to invest in a sole proprietorship without taking an interest. Is it that once I pay an investor a return on investment from part of the profits that he would become a partner? How, then, can an investor be compensated for the investment? Is there any way to structure it so that he is not partner, but still is paid some of the profits as a return on investment? Thanks, and hope that makes sense
 

davew128

Senior Member
The only way they can "invest" without being a partner is to lend money. If their profits are based on ROI from the business, then they are a partner. Period.
 

Zwold

Junior Member
Thanks for the input. If we are exporting cars to Sweden and have a partner over their handling that side, does he need to be a partner within the LLC too? He's not an US citizen, and won't be doing business within the US; so I wasn't sure if he needed to part of an LLC incorporated in the US.
 

HomeGuru

Senior Member
Thanks for the input. If we are exporting cars to Sweden and have a partner over their handling that side, does he need to be a partner within the LLC too? He's not an US citizen, and won't be doing business within the US; so I wasn't sure if he needed to part of an LLC incorporated in the US.
**A: no he does not. I suggest you hire a business law attorney at this point.
 

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