Startups are the main target of investment, but sometimes they jointly invest in personal brands or invest in acquaintances' businesses under the name of a corporation. As with all investments, good performance is not a problem, but when the business does not go as well as expected, you start to get a headache thinking that you will not be able to get your investment back.
First, since there are no shares to be received when investing in a sole proprietor, even if it is a capital contribution, it is recorded as a loan on the corporation's books. If it is an original loan contract, it will usually be a contract that sets the principal, interest rate, and maturity, but if it is a capital contribution, it will usually be a contract that states the profit and loss distribution ratio according to performance, and in this case, there are many cases where the loss is jointly borne.
Therefore, even if a loss occurs, the individual business owner is not obligated to return the investment principal. Accordingly, investors need to decide whether to settle the remaining investment and withdraw from a business that is continuously incurring losses, or to continue to hold onto it.
If you decide to recover your investment, you may be in a situation where most of the principal will have already been exhausted, so there may be a way to transfer the remaining asset value or trademark rights and receive a certain amount of compensation. However, since it is difficult to recover the principal, you may be tempted to treat the difference as a corporate expense.
In addition, if you receive a tax invoice from a self-employed person for expense processing and transfer the rental fee to an account as a payment fee, you should be careful because a surcharge may be imposed due to the receipt of a tax invoice that is different from the facts. In addition, even if you write off the rental fee, you need to separately review whether it satisfies the deductible requirement under tax law.
If you believe that the business will grow in a few years even if there is a loss now and want to continue to have rights equivalent to the investment share, that is, if you believe that it is worth investing in the business rather than recovering the principal, one way is to persuade the individual business owner to convert into a corporation and then convert the loan you have into stock. Of course, this is possible only if you recognize each other as trustworthy joint investors.
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