Subleasing an Investment -Name this
October 29, 2017 3:12 PM Subscribe
What is it called when you pool resources together to buy investment but to a 3rd party it only looks like one person has ownership. What is this process/called? Not looking for advice but want to know what this is called so I can do my own research.
Person A (as an accredited investor) can invest in Company B 100k. Person A invests 80k of their own money and uses 20k from Person C (who is not eligible to invest directly in Company B) for a full 100k investment. According to Company B, only Person A has invested 100k in the company. Person A and Person B have a written agreement that anything results in proceeds in the stake of Company B will be distributed to Person B based on percentage of investment. Any losses will also be shared.
Person A (as an accredited investor) can invest in Company B 100k. Person A invests 80k of their own money and uses 20k from Person C (who is not eligible to invest directly in Company B) for a full 100k investment. According to Company B, only Person A has invested 100k in the company. Person A and Person B have a written agreement that anything results in proceeds in the stake of Company B will be distributed to Person B based on percentage of investment. Any losses will also be shared.
The legal term, absent a formal trust arrangement, is "nominee." Could be innocent, could be otherwise.
posted by megatherium at 4:03 PM on October 29, 2017
posted by megatherium at 4:03 PM on October 29, 2017
The accredited investor may have as part of their contract for the investment a clause precluding this sort of arrangement.
posted by thenormshow at 6:19 PM on October 29, 2017
posted by thenormshow at 6:19 PM on October 29, 2017
As uncaken mentions, "straw buyer" is the term you probably want. As janey47 mentions, this arrangement is probably illegal, especially if the "accredited investor" part of the question is more than hypothetical.
The general pooling of many into one for accounting or tax purposes may be called a company, corporation, co-op, charity etc. depending on circumstances.
posted by The Notorious B.F.G. at 6:42 PM on October 29, 2017
The general pooling of many into one for accounting or tax purposes may be called a company, corporation, co-op, charity etc. depending on circumstances.
posted by The Notorious B.F.G. at 6:42 PM on October 29, 2017
Yes, "violation of the securities laws" is the phrase you're looking for. (This is NOT a "nominee" arrangement in the securities world, where that language is used to refer simply to a subsidiary of a securities firm holding shares for its customers in its own name to facilitate various transactions.)
Also, being frank, if you're being pitched such an arrangement under such circumstances, there is about a ninety percent likelihood that the person doing the pitching thinks you're a moron and is selling you something far higher-risk than he thinks you're capable of recognizing.
posted by praemunire at 7:04 PM on October 29, 2017 [1 favorite]
Also, being frank, if you're being pitched such an arrangement under such circumstances, there is about a ninety percent likelihood that the person doing the pitching thinks you're a moron and is selling you something far higher-risk than he thinks you're capable of recognizing.
posted by praemunire at 7:04 PM on October 29, 2017 [1 favorite]
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I doubt that person A could make the investment without attesting that all funds are their own or attributable to accredited investors.
Let's be kind and just call it unenforceable.
I thought you might be asking about investment clubs but they are entirely above board.
posted by janey47 at 3:28 PM on October 29, 2017 [4 favorites]