If you have a few extra coins lying around and do not want to invest in shares or in a fixed deposit, you can decide to invest in businesses. Such investments can take a variety of forms, depending on your level of commitment, level of expertise and decisions about your level of involvement within the business among others. At one end of the gamut, you may invest in an existing business and become a part owner. This would generally involve valuing the business and investing a sum of money in return of a percentage of the company (if it is decided that you would also become a director, be careful to note your obligations as a director of the business).
You may also decide to join as a partner in an existing business. It is usually recommended that parties set up a company instead of a general partnership, primarily due to the extent of personal liability and risks involved for the partners. For smaller businesses in which it makes sense to maintain a partnership structure from a costs and risks perspective, we would recommend that a partnership agreement be entered into by all partners. In a partnership, each partner is generally required to take active part in the business, unless you are a silent partner. Partners also have various obligations and you should be fully aware of these in assessing your involvement in a business.
There are also other ways you can invest in a business. You can provide a loan to a company or enter into an investor agreement. This is a more risk averse approach. Nevertheless it would be best to consider other forms of security such as a personal security as part of the loan, should the business be unable to pay off its debts including the loan repayments.
Vik Pillay
Senior Associate (Admitted in Australia, Singapore and England & Wales)
