So you want to start a business
or buy a business or buy real

estate with other people. And
you decide that you want to do

this with friends and family. So
how do you do that legally?

Raising money from friends and
family happens every day, it's

very common that people get
their start by going to those

friends, going to those family
members and getting that

Headstart. Now, whether it is
because they are buying a

business, or starting a business
and just need seed capital, or

they're buying real estate, or
they're doing something else,

they're starting a fund or
their, whatever it is that

they're doing. If they're
raising money, the question then

immediately needs to become
well, how can they do that

legally, a lot of people think
that they can simply raise money

from friends and family by
basically taking a loan from

them. But that's not really
true, they can get the loan. But

what it also requires is that it
is a security that they've that

they've made, and so they need
to raise that money, offer those

terms successfully, they need to
do it in a manner that is

compliant with the rules. Now in
general, there's two kinds of

categories that people mostly
use in order to raise that

money. First off, they come up
with some sort of debt. So they

say, Okay, I'm gonna borrow $1
million, from my friends and

family. And I'm gonna pay that
back in five years, and I'm

gonna give them 10% interest.
And I'm not going to pay them

interest, though, until the very
end, because we have to get our

feet off the ground. That's a
very common kind of term that

maybe may have existed. But that
actually is a security because

what you're doing is you're
raising money. So you're

accepting money from people who
are expecting a profit, they're

expecting to get that 10%, back
at 10% over what they invested

back. And it's relying on on
you, right, you or your business

is the one that's actually doing
the work. So their role is

passive. At that point, it
immediately as a security, well,

let's take the interest of well,
they are investing in the equity

in, in the business. So they get
a 10% stake in your business by

giving you a million dollars. So
you're obviously valuing

business at $10 million numbers
notwithstanding, you've got a

$10 million business, you're
borrowing that $1 million, by

giving them that equity, right.
So they're selling, you're

selling equity to them, they're
again to it is a security

because what's happening is
they're investing money, relying

on you to do all the work. Now,
if it's the case, where your

brother in law is going to give
you that million dollars, but

you too are going to work side
by side and work make this

business big. That's not a
security, that's a basically a

joint venture, or it's just the
company itself. It's that

passive role that suddenly makes
it a security. The challenge

when you're raising money for
this when you're raising money,

especially for businesses, or
for probably more businesses

than real estate, is that the
amount of money that you're

raising, may not meet the actual
contractual, the deals that you

have to do the kind of returns
that you have to do in order to

pay all the other fees that go
with it. I am an attorney. I'm a

syndication and private equity
fund attorney, I charge money,

my costs, I don't work for free,
and neither does any other

Security attorney that I know,
we charge a good amount of money

for. So at some point, if you're
raising, say $50 Well, my fees

are a lot more than $50. So
obviously you're not going to

pay me for to raise that $50.
Unfortunately, also, the odds of

getting in trouble over $50 are
practically non existent. So

there is that but really, that
tipping point five comes when

you're raising 500 $600,000 It
stops making sense to kind of

try and do it on your own and
try and make it all work. And

really another as an attorney is
is your best bet. Now it does

cost money, but you've been set
it up properly on the right

footwork so that you can
continue to grow your business

and not worry about something
bad happening. That something

bad happening is a securities
violation. Something like that

happens you're never going to be
raising money again, you're

going to be cut out from the
whole private equity system,

because you'll be considered a
bad actor. So you don't want to

go down the road of vite Bev
committing a securities

violation. Now, I understand
that it costs a good amount of

money to hire someone like me,
someone who's best in their game

and can really set things up.
But you also know at the end of

the day, it's setup, right? You
also know that it's set up in by

somebody who knows, we've seen
this happen many, many, many,

many, many times, we do about
100 deals a year. So I see a lot

of deals get put together, I
know how every business is

structured, in terms of those.
So we have a very good

foundation on that. So bottom
line is this, you want to raise

money from friends and family,
if they're gonna be passive.

It's a security. And so figure
out a way either to make it work

without their money, or find
another avenue, or do the right

thing and hire an attorney like
myself, in order to get it done.

The question that also comes up,
I should put in that well, how

does venture capital work? And
why are angel investors? Why are

they a security? And why don't I
have to do this for them? Well,

actually, most of the time, you
don't need to do this for them,

because they're never taking a
passive role. An angel investor

or a venture capital company is
not coming into your account is

not investing in your business,
passively. They're going to be

taking board seats, they are
looking at not only just giving

you money, but they are looking
at their investment. They want

to protect it and they want to
give you advice at the same

time. So therefore, it's not a
security, they're just investing

in your business, but they are
going to be very active within

it. When it's not active. And
when it's passive, then it's a

security. And when you're
raising money from friends and

family, that's what's going to
happen. It is a security. It's

either got to be registered with
the SEC or fall under an

exemption. I hope that helps. My
name is Tilden Moschetti. I am a

syndication attorney with the
Moschetti Syndication Law Group.

If we can help you don't
hesitate to give us a call.