Entrepreneurs often tell me they want to "get investors" for their business. However, in questioning them I find out that they often do not understand the definition of the term "investor." Below are some key points to help you understand the term in case you are unsure of the meaning as well.
-Someone who loans money to you or your company is not an investor; they are a lender.
-An investor will receive an ownership stake in your company in return for the investment, whereas a lender will not (unless there is a separate agreement to this effect).
-An investment does not have to be paid back, whereas a loan does have to be paid back.
-The sale of an investment may be considered to be a sale of a security and thus regulated by the Securities Exchange Commission and state regulators, whereas a loan is not considered a security.
-The sale of an investment will be considered to be the sale of a security if the investor does not have management control in the company.
I hope this helps!
Friday, October 21, 2011
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