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Ask Law Educator, Esq. Your Own Question
Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 118255
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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We are a corporation and are having a difficult time getting

Customer Question

We are a corporation and are having a difficult time getting a loan to pay off MCA debt and to help build our business because our credit is too low to get one. We have been informed that if we transfer ownership in our business to someone trustworthy (like our daughter) with a better score, we could get the loan then transfer the ownership back to us. First of all, is this legal and would there be any negative ramifications to our business and/or taxes in doing this?
Submitted: 4 months ago.
Category: Legal
Expert:  Law Educator, Esq. replied 4 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
To actually try to get a loan to recover the business from such a transfer, the transfer has to be at an arms length transaction, meaning to a real third party and for actual reasonable market value of the business and payment has to actually occur. Just transferring it to a relative or friend for no actual value or payment would generally be considered a fraudulent or voidable transfer and not a legitimate transfer.
One thing you could consider is looking at getting an investor to invest in the business to pay the loan off in exchange for maybe 10%-20% of ownership in the business.
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