Advantages and disadvantages of funds from Family and Friends Advantages
If funds are not to be repaid, the funds are either a gift or a partnership investment. Unfortunately, setting up a partnership investment has complications. Partners have the same liability as the owner, unless you form a limited partnership, a corporation or an LLC. That means if the business fails, the partners will use their personal assets to pay any business debts. Unless the partner is involved with the day-to-day operations, most people would not agree to this.
To solve this problem, you can get creative and set it up as a loan, with payment terms be based on the company's net revenue. Then document it as a liability on your balance sheet.If you set up a partnership, limited partnership, corporation or LLC: