So, um, what's the worst thing that could happen in this situation?

August 7, 2017 7:08 PM

I have a family relative that showed up very excited and announced to the rest of us today that for the last couple of months he's been a business partner in a venture with his future son-in-law. Do you think there could be any problems coming ahead? More details after the fold.

The business is based in Florida and supposedly sells a consumer appliance on Amazon. The son-in-law does all the legwork while my relative supplies his good credit score so that new inventory can be purchased through my relative's line of credit. The son-in-law gets 80% of the profits while my relative gets 20%.

As far as my relative is concerned, this is a risk-free return on his good credit. He says that he's already received payments for the first two months.

However, there are some things that I worry about. For example, the agreement they have is informal and not written in a contract. My relative also isn't interested in seeing a tax accountant or other financial professional to verify the business is on the up and up. He isn't even interested in seeing the product listing on Amazon. He says he doesn't care how his money is used as long as he gets his return on investment.

So what's the worst that could happen to my relative in this situation? Besides the prospect of losing money somewhere down the line, is there any chance his determined ignorance could get him into legal hot water as well?

Thanks for your insights.

posted by Gosha_Dog to Work & Money (14 answers total)

This is how most of the small businesses doing Fulfillment By Amazon operate, and as long as he pays taxes like he's supposed to and isn't selling something illegal it's fine. If the two of them are too stupid to formalize the business agreement there's a dozen ways they could rip each other off, as has been possible since the invention of currency, but the stakes seem pretty low at this point.

It's not risk-free in the sense that they could overpurchase inventory that suddenly can't be sold for some reason and is unreturnable. The son-in-law could disappear with a month's worth of profit maybe. The thing they're selling could kill someone and if they don't have a liability-protecting business (in most states, you're automatically a sole proprietorship if you don't file for any other form of business operation, and that's the cheapest business to be but your personal assets could be seized for damages in a suit). Pretty much the standard stuff that can go wrong, and pretty standard risks to take for a very young business.

One of them will get nervous one day and do something about it. Next year when they do their taxes they may abruptly decide they need to become a more formal business, which can be done retroactively. Very little of this is panic stuff, especially since there's likely very little hangtime between purchasing goods and selling them.
posted by Lyn Never at 7:27 PM on August 7, 2017 [7 favorites]

If it would give you peace of mind you could try to buy one of these widgets on Amazon and try it out yourself or give it as a gift, that way you could be satisfied that it is a real thing that people can buy.

Telling uncle Terence you want to buy one for your cousIn may be a good excuse to get the product listing anyway.

You can't lose money you didn't put up, and it sounds like this guy has paid out zero dollars. Absent being perhaps somehow liable for damages as Lyn describes above, I don't see how relative can lose money.

Actually another case is if son-in-law buys up a million dollars of crap on relatives's credit and then can't sell it, and hence can't pay on the load, and then they come after relative.

But maybe give aunt Gladys the benefit of the doubt that she wouldn't let herself be liable for securing a loan to buy ten thousand microwaves or whatever.

On second thought yeah depending on what 'use the name for credit' means thisbcould be fairly risky if son-in-law is extra dumb, overconfident, and engaging i risky behavior with relative as the gaurantor of loans.
posted by SaltySalticid at 7:59 PM on August 7, 2017

...am I misunderstanding? The son-in-law is borrowing on a line of credit in the other relative's name? If so, then people saying it's relatively harmless are catastrophically wrong. Your relative will be liable for every expense on that line of credit, plus interest, plus default fees, etc. (so NOT capped by the maximum on the line of credit), if the items don't sell. And if the items don't sell, he could get nothing. Without any kind of formal agreement, the son-in-law could also choose to spend that money on whatever he felt like, and good luck trying to get it back.

However, not even wanting to see the product listing = either actually suffering from dementia (in which case someone needs to step in regardless) or deliberately being ignorant and greedy and 'not wanting to know,' in which case, let him take the consequences, including any if there's an actual problem with the product. Some people just gotta be morons.
posted by praemunire at 8:38 PM on August 7, 2017 [14 favorites]

Since you asked "what is the worst thing?" I'll go there...the worst thing could be that the son-in-law is not being honest about the product being sold (as the listing as never been shared) and the line of credit is being used to buy items that are illegal in your country, and this relative is on the hook for this. An example of this might be purchasing prescription drugs from another country to resell in the US, selling stolen or "fallen off the truck" items and so on.

The fact that you said, "supposedly sells a consumer appliance" was a red flag for me.

Another terrible outcome could be that the son-in-law is using your relative's line of credit to take out major loans. He is then paying back 20% and continuing onward...and so on.

So basically, worst case scenario? Fraud? Prison?
posted by Toddles at 10:08 PM on August 7, 2017 [5 favorites]

He could also loose his relationship with his daughter.
posted by AugustWest at 10:24 PM on August 7, 2017 [2 favorites]

lose
posted by AugustWest at 10:47 PM on August 7, 2017

I'm with praemunire, this sounds like a lot of risk for relative, and even assuming good faith and honesty from son in law, the other risks seem almost too obvious to state: son in law could not have enough money to pay back relative, relative would be the one who legally incurred the debt. The idea that this is risk free is bizarre. Son in law is (hopefully) getting a good deal on an item at wholesale, but prices can fluctuate and his inventory could take a hit in value overnigh if demand drops or new sellers move in to compete on a lucrative item. There are lots of people who do this as a business, some do very well, but others end up with 20,000 unsellable items moldering away in storage. It really just depends on how prudent a businessman son in law is.
posted by skewed at 11:43 PM on August 7, 2017

new inventory can be purchased through my relative's line of credit

WHAT?? Have you ever seen "The Sopranos?"

A VERY bad thing that could happen is a bust out, like this scene (NSFW), where people who have access to your relative's credit line are ordering hundreds of thousands of dollars of stuff with zero intention of ever paying off a single invoice.

The future son-in-law could be on the up and up, but who knows who he's working with?

There are a LOT of bad things that could happen here and the very worst situation is your relative loses everything they have and goes to jail for fraud.

How much influence do you have here? Your relative needs to end this business relationship now. Figure out how you can help make this happen.
posted by yes I said yes I will Yes at 3:44 AM on August 8, 2017

Most "consumer appliances" of the sort you could buy in bulk at wholesale that I've seen on Amazon are sold by a Chinese company directly. Why are middlemen going to make money buying from China and reselling?
posted by spitbull at 3:52 AM on August 8, 2017 [1 favorite]

Also 'future son-in-law'?

This is extremely bad news. Does gullibility run in this family? I would not let a family member open a business with my credit, never mind a potential family member. Businesses fail, especially when one's own money is not at stake. But I doubt this is a real business. Do they even know this guy's real name?
posted by readery at 5:12 AM on August 8, 2017 [2 favorites]

As far as my relative is concerned, this is a risk-free return on his good credit.

The risk is that there are completely sound reasons other than a simple lack of credit history for FSIL's credit rating being worse than your relative's.
posted by flabdablet at 6:47 AM on August 8, 2017 [4 favorites]

And just to note a friend of one of my sisters fell for a scam like this, maybe ten years ago? Future son-in-law cleared them out and then disappeared before the wedding. I believe he was operating under an alias.
It seemed odd to me that someone would do such a long scam as it was over six months, but it was a six figure take. Sorry, I don't have access to details but it left the family in a very bad way.
posted by readery at 9:53 AM on August 8, 2017 [1 favorite]

If his good credit score is relevant to the business's ability to buy things, that's a pretty clear indicator that there are loans being made and he is cosigning them. Yet he says he's not taking on any risk. That sounds like he doesn't understand what he's signed up for, and he should explicitly ask the son-in-law - or ideally he wouldn't go on hearsay, he'd run a credit check on himself to see what his outstanding debts are.
posted by aimedwander at 10:10 AM on August 8, 2017

I thought of this post when I heard this recently. Could this be what your relative is involved with?

Link: Planet Money podcast
posted by Toddles at 8:05 PM on August 16, 2017