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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10629
Experience:  30 years of corporate, litigation and international law
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Hi, I have a company setup as a C-corp in DE, and registered

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I have a company setup as a C-corp in DE, and registered in CA where we live. My wife and I invested our 401(k) to purchase stock in the company to fund the startup. We are the only investors. In order to start the business, we needed to move and borrowed $60K from the business to pay moving expenses and living expenses while we looked for a business location and got the business setup. I'd like to structure the loan with minimum interest, maximum term, and even considered annual forgiveness at set amounts as long as we operate as officers of the company - but I want to make sure it doesn't look like we raided the 401(k) funds just to avoid taxes and report a loss on the business this year. What is the most 'borrower' friendly terms I can establish for the loan without running afoul of any legal issues?

bizlaw :

Have you considered treating the moving expenses as a business expense of the business which it will deduct and carry a loss for the current year. Paying employee moving expenses is not uncommon so that will account for a portion of the monies you received. The balance that you receive you can treat as an advance against future salary payments. Reduce your salary going forward to reflect repayment of the loan. You will only have to pay the employment taxes related thereto. Such loans are typically without interest or at best a very low interest rate such as 4%. This can be spread out over 2-3 years. I suspect that the moving expense is the largest chunk of the money so what is left should be readily doable in that time frame since both of you are getting salary and paying back what is owed.

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This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.


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