Spring 2006 issue of Horizons

Finally, if you're married, the lender may insist that your spouse co-sign the promissory note. If your spouse co-signs the loan, not only is your jointly owned property completely at risk for this joint debt, but also any assets that your spouse owns separately - a house, for example, or a bank account. In addition, if your spouse has a job, his or her earnings will be subject to garnishment if the lender sues and gets a judg- ment against the two of you. D EBT VS . I NITIAL I NVESTMENTS (E QUITY ) Equity is the money raised from investors in exchange for an ownership interest in your business. Equity is common in the sale of stock to a limited number of investors or participation by venture capitalists. The sale of stock is highly regulated by state and federal agencies, and you will need the help of a corporate lawyer. Normally the initial sale of stock to the public (initial pub- lic offering or IPO) is deferred until an earnings history is established. Sometimes such a discussion arises with friends and family who want to be your partner. Consider this carefully because they will then participate in the increased value of the business and possibly have voting rights. The other item to note is that depending upon the type of entity you choose for your business (C corporation, S corpo- ration or LLC), you will need basis in the entity in order to potentially deduct any losses generated by your entity. Basis can be derived in a variety of ways, including initial invest- ments to the business, personally guaranteeing loans and personally loaning money to the entity. All these options should be evaluated anytime your business is in need of financing. Prior to making a decision, it is strongly recom- mended that you consult with your accountant.

Starting

Business Life cycle

Growing

Selling

Questions? Contact Tonja Hilton, Partner-in-Charge, Small Business Group 314-290-3334 tonja.hilton@rubinbrown.com

18 • spring 2006 issue