Startup Financing from “Friends and Family”

Question: My family is giving me money to fund my business startup, do I need to put anything in writing?

Answer: Startup financing from “friends and family” is very common, but usually handled very poorly.  The more these transactions are handled and documented in a business-like fashion, the more likely both the business and personal relationships will be to survive.  Term sheets, promissory notes, security agreements, personal guarantees—the documentation will vary depending upon the size and structure of the deal—should be carefully drafted and executed.  These transactions do not have to be complicated or expensive, but they are critically important.