Equity Partner Liability/Responsibilities

1 Reply

We usually invest our idle money as a private lender. We get the negotiated interest rate on the money we lend. We don’t participate on the upside, but we don’t have to do anything else not are liable for anything after we lend the money.

We are considering to become an equity partner with a guy we’ve worked as a private lender in the past to participate in the deals upside rather than getting a fixed rate. He’s ok with it too. 

What are the cons of being an equity partner vs a private lender? Can anybody (tenant, contractor, bank, city, etc) sues us if we are a limited partner without a managing role? What’s our exposure? Can we lose anything other than our capital invested? What are we on the hook for?

@David Fernandez

If you are going to be an equity partner try to be “limited” partner based on your remarks. It is extremely important to use a lawyer to help accomplish your goals. 

Partnering as tenants in common is dangerous vs being members in an LLC or SCorp. Entities are ways to limit your personal liability. You are correct to be asking the liability questions.

You can joint venture as well. 

I sometimes do the note with interest and build a kicker in the note verbiage to share in the upside based on sale price or profit and not be a “partner” or in an equity position. 

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