Is an investor a partner?
Differences between investors and partners
In most cases, investors and partners play two very different, distinct roles within a business. However, they can both contribute a great deal to the success of your organisation, so it is important to think carefully about who is involved with your organisation and in what capacity.
Leaving aside the distinction between different types of partner (e.g. equity member, silent partner, etc) for the moment, a partner is someone who co-owns the business. That is to say, they will be in possession of a share of the business, and as such will normally take a day-to-day interest in how it is run.
They will raise capital based on a predetermined agreement with their fellow partners, and while they will benefit from any profits, they must also shoulder the burden of any losses incurred.
In contrast, most of the time an investorâ€™s role is simply to put money into the business with an expectation that they will see a return on their contribution.
It is down to the partners to ensure this happens. They are not involved in the day-to-day running of the business, but as investors putting in their own money they will need to be kept regularly informed by the partners on matters to do with the business.
When might an investor be a partner?
There are some instances where an investor may end up as a partner in the business. This generally happens when an investor sees a lot of potential in a business and requests a share of the business instead of an immediate financial return on their investment.
How much of the business they take on will need to be agreed between the investors and the existing partners.
If you would like more information on this subject, you can contact Ralli Partnership Law solicitors on 0161 832 6131.