I am in the process of starting my business and I have a relative who would like to invest now, and then again later (probably on a larger scale) if we expand. He would like to be part of the business for as long as it's running, but is not requesting to have a voice in any decisions. I guess he would be a silent partner? He says we don't have to formally name his as an owner, so we will keep it as a sole proprietorship for now. My question is: do I need to do anything legally regarding this investment? Do we need to draw up a contract, such as an angel investor contract? We would like to keep this informal, but I don't want to get into any legal problems later. Does anyone have any experience with this?

Thanks!

YES! Absolutely you need something in writing both to protect you & him/her.

Angel investors are different from silent partners. You will need to have a very serious & honest discussion about exactly what everyone expects.

I should be so lucky! Remember though that money can sometimes change relationships. Be sure to ask exactly what kind of return on investment s/he is expecting.

You don't necessarily need a lawyer to draw up a contract. You can type an agreement outlining the entire relationship. Remember that anything NOT written in the agreement is NOT part of the agreement. If something happens you will be bound to the 4 corners of the "contract" so remember that nothing is assumed & everything must be included.

Some ?s to ask include: what type of return on investment do you expect? what do you expect to happen if the business fails? what if it is a huge hit? Is there a point where we/I can buy you out?

You absolutely need to get an attorney involved in this and get some very clear-cut guidelines for everything in writing.