Are you looking to start-up a business and seeking loans from friends and family? Be forewarned that this simple transaction can have significant consequences. Were you aware that such a loan could be considered a security and subject to federal and state security laws? If you have friends and family members lending you money and they expect a return on their loan (investment) it is considered a security. If you borrrow less than $1 million dollars from potential investors within any consecutive 12 month period you would be exempt from registering with the SEC, but you would still be required to file FORM D, as well as the Uniform Consent to Service of Process form. In New Jersey, if you sell to (take loans from) no more than 10 people within any 12 consecutive month period you are also exempt from registering with the State of New Jersey Bureau of Securities.
By: Jill F. Rosenfeld, Esq., who is an Associate Attorney practicing in WJL’s Real Estate, Tax, Trust and Estates and Corporate Departments