Setting up Company with Business Angel

[Strongback]

A friend of mine is setting up a limited company and is been speaking to a possible investor about getting start up money.

The deal would be similar to what happens on BBC 2's the Dragon's Den. €xxx's for a persentage sharehold of the company.

The part he has a doubt about is how the angel's investment is shown in the company accounts. His accountant has advised that the angels investment is brought into the business as an investors/shareholders loan. His concern is should the business fold in a couple of years the company account will show that the investor will have to be repaid his investors/shareholders loan.

Has anybody any thoughts or advise on this. From the model above it seems the investor will have have to be repaid whether the business is a sucess or a failure. It seems like the invetor would not have risked anything. Is this correct or is there a different way to enter the money into the accounts.

Thanks for any advice.

 

[aetius]

Is the investor giving a loan to the company (like a bank) or is he sharing the profits/losses of the new company, or a bit of both ?

 

[bizz1]

If the investor is getting a % shareholding in the company then the Investor is actually purchasing a piece of the business therefore is entitled to share the profits & losses of the business.
If the business folds then the investor, as a shareholder similar to the founder(s), takes the hit also