If I am bringing money to a new idea (Not my money but an investors) and get an ownership stake is this legal?
I have been asked by a friend to help him talk to investors about a business idea he has and to help him get funded. I asked him what would I get out of the deal and he offered interest in the company (15%) and that I help him as an advisor. looking on line I could not find anything out on the legality of this and just want to make sure we are not breaking any laws as I read about a finders fee (which sounds more like a commission)
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This is not breaking laws but that sounds ridiculously high for the "work" he is asking you to do. It may be generous, but one has to question his business judgement... – Tim J 12 years ago
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It would help to know what size and stage the company is at, how much capital you are wanting to raise and what your involvement will be. – Susan Jones 12 years ago
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Such fees are often illegal in the US, as they are reserved for licensed broker-dealers. And by the way, standard fees for fundraising are around 5%, with 6% considered high -- not 15%. – Alain Raynaud 12 years ago
2 Answers
Yes it is legal. The fee should be negotiated depending on what you do. Are you writing a business plan? Doing the financials? Setting up appointments with investors? Will you have an ongoing day to day role with the company once it is funded?
Often a finder's fee is negotiated as a percentage of the capital raised, up to 5% depending on the amount. Alternatively, if you believe in the future of the business, you may chose to take an equity stake.
Unless your role is very substantial however, you will probably find that a future investor is not happy with you holding 15% of the company. It seems overly generous to me, without knowing more details about the situation.
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I also want to add that you need to check the legality specifically for the country you are in as different countries have different laws. – Susan Jones 12 years ago
You do not state what country you are in, and obviously laws vary. Finders fees are common however and generally quite legal, particularity when fully disclosed to all parties.
