Partnership as a Sleeping Investor

[fawadn]

dear fellows,

one of my cousin is having a running retail shop of electronics equipment business from last 25 years.
he is having very good profit in it and very happy...
now he needs to spread his business more..
and for that im interested in investing in his business as sleeping investor..

i will do nothing.. dont go to business shop.. or anything..
i only get share of a profit at the end of an year on the amount i ve invested in his business..
amount is very big. ..

so what should be the rules and points we should have to decide..

should i ask him to show me calculation of profit every year..
??
should i ask him the overall profit of his business..
??
wat else should i want..

io dont know anything abt business and finance..

please help me

[huggytree]

your going to have to hire a business lawyer

he will answer all your questions and know what you need to know

I would advice you not to invest in a relative....if things go wrong how often do you see him?...Christmas could be real fun If you both hate each other..

what if things don't go perfectly....are you going to be able to sue your cousin....your at a huge disadvantage in this relationship....he controls everything and you just collect a paycheck once a year......because he;s your cousin your not going to want to create waves....your most likely going to just take whatever he hands you

most businesses fail (eventually they all do)....this isn't free money for you...you may have to fight to get paid or get justice....doing that against a relative is not a good idea

its kind of like dating your boss at work.....if things go well in the relationship you may get raises....if you break up you may get demoted ....its just not a smart place to be

[Freelancier]

I agree with huggy... don't ever let money come between you and friends or family, so don't put yourself in that position where it might happen.

That said, getting a lawyer and an accountant now before you commit money is a good thing. They will tell you what information you will want to make an informed decision. And make sure the information is audited... which means that you're not just taking the owner's word for the financial condition, you also have an independent auditor "test" the numbers to make sure they're based on reality (like whether inventory is really $XXX instead of $XX or $XXXX). You don't just want a check at the end of the year, you want monthly or quarterly accounting numbers to make sure everything is on track (and those accounting numbers need to come from the accounting software and not a summary put together by the owner with the potential for mistakes or omissions). You want regular board meetings and to visit the business regularly to make sure your money is really being put to its best use. Just being a silent partner doesn't mean you don't get to say anything, just that you're not responsible for day-to-day operational decisions in the company. You should still want a say in the big decisions that periodically come up.

You want an exit strategy for when you decide things aren't going your way and get some or all of your money back. You should want the money to be secured against something in the business, so that if the business goes bust, you at least have that "something" to sell and get some of your money back. If all you get is minority shares in the company, you'll have no say and no way to sell those shares, which is not a good place to be.