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socrateaser
socrateaser, Lawyer
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Experience:  Retired (mostly)
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I currently reside in Louisiana. I want to start a small loan

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I currently reside in Louisiana. I want to start a small loan LLC. For the last 4 and a half years, I have been saving money with 8 very dedicated family members. I am the president and founder. We are saving in an effort to change our financial statuses and to seek financial independence. However, we are receiving very little from banks on all hard earned money. Therefore, we would very much like to extend this concept to people who are struggling with their finances, who the banks do not want to work with. There are approximately 68 million unbanked, or under-banked people in the U.S. who are not being served. Long story short, we would like to start a loan company for people who are need of short terms loans --we are not planning a payday predatory lending business by no means !!! But renewable, upgradeable loans that can really help people. In this way we benefit while helping others to benefits. The problem is that my family members are located in LA, GA, SC, and VA. We will all be soliciting members from these states to join us by extending them a membership and short term loans. How can I form a legal Online business entity that will serve people from all these states and stay within legal boundaries as far as regulations and taxes are concerned? Thanks so much, I have spoken to many lawyers who have already told me that this is beyond their expertise. Please help!
Hello,

How much in net assets do you have available with which to finace your institution?
Customer: replied 3 years ago.


We want to start with a select group of members/lendees at $60,000.00 and increase each year

Okay...

Are you looking for step by step instructions for this enterprise, or general guidance or do you want to hire a lawyer, or ____ [fill in the blank]?
Customer: replied 3 years ago.


Right now we are looking for answers on how to incorporate and preferably which state would be most conducive to this type of business. I am sure that legal advice is needed in order to get started.

Customer: replied 3 years ago.


In direct answer to this question, I am sure that we will need to hire an attorney. But in which state?

Every U.S. jurisdiction has approximately the same incorproation filing requirements, though fees differ in each state. In LA, for example, you would file:

1. Articles of Incorporation
2. Disclosure of Ownership

Once you organize your corporation in one state, you register it with another state as a foreign corporation. Information is available at the Secretary of State website for each target state.

After that, you would apply to each State Department of Financial Regulation or Banking to be licensed as a consumer lender. Each state will have different requirements, and frankly, you may have difficulty satisfying those requirements with only $60,000 in assets.

Assuming that you receive your license, then you can operate your lending business in those jurisdictions.

Whether or not one state or another is more or less difficult to operate in is really a matter of opinion. My opinion is that California is always the most difficult state to deal with. Texas is frequently the easiest.

I hope this at least starts you down the right road. If you need more info, please feel free to ask.

Customer: replied 3 years ago.

This is absolutely the best information that I have heard thus far :) I am so determined to do this. I just may have to set up a line of credit in addition to what we have. Also, I just might start in Louisiana and extend as we go along--one state at a time. I have just a few more questions so that I can be better informed:


What is a disclosure of ownership?


Why do I register in another state as a foreign corporation?


This is very new to me, but I am determined to make this happen as I really do not like predatory lending practices and I hope to make a difference as far as these practices are concern by taking tiny steps at first.

What is a disclosure of ownership?

A: A corporation issues stock certificates to its shareholders. Any shareholder with 5% or more ownership is required to disclose that interest to the state on the disclosure of onwership form.

Why do I register in another state as a foreign corporation?

 

A: Because, where a corporation does business in a state other than its state of incorporation, if it does not register, then the new state refuses to recognize the corporation's legal existence. In most states, this means that the corporation is prohibited from brining, maintaining or defending a legal action against any other party. Consequently, you could make a loan to a borrower, and then when the borrower defaults, you would be unable to sue to collect your money -- because your corporation is not registered in the other jurisdiction.

 

Also where lending is involved, you need a license from the state, and unless you are registered in the state first, the regulatory agency will simply reject your application, because, once again, it does not recognize the legal existence of your corporation.

 

Hope this helps.

Customer: replied 3 years ago.


You are awesome. I have one last question. Do you know of an attorney in Lafayette, Louisiana who would be able to assist me in this venture? I have already gone ahead with a very detailed business plan and of I am heavily into my research. I am going to need a good attorney and an accountant to keep me straight while I move forward


Thanks.

I'm flattered by your kind words. Regrettably, I am not permitted to make direct referrals to attorneys from this forum. The best that I can do is to provide you with a link to the various state bar referral services. The services are generally the most reputable means of obtaining an objective legal referral. However, they do charge a small fee for their services. So, you need to make sure that the referral you receive is to someone who actually has knowledge about establishing a small consumer finance lender. Otherwise, you may waste your money on another attorney who says that it's outside his/her scope of knowledge.

Hope this helps.
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