If I funded my friends start up with cash and credit in my name, can I take possession of the items purchased with my money/credit as collateral?

UPDATED: Aug 23, 2012

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If I funded my friends start up with cash and credit in my name, can I take possession of the items purchased with my money/credit as collateral?

We have a partnership agreement which entitles me to a percentage of the revenues each month. Business isn’t doing well and repayment of principle and equity is non-existent. Am I entitled to the items purchased with my seed capital/credit as collateral in case of default? There’s a large portion of assets that were purchased with credit cards that are in my name. Can I seize those items as collateral? If so, what must I do to legally be able to seize them in case of non repayment or principle or equity payments.

Asked on August 23, 2012 under Business Law, Oregon


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

No, you may not take those items, unless and only to the extent there is a written agreement making those items security or collateral for a loan or for other obligagtions. Without such a written security agreement, you have no right to seize those items.

If you are not being paid the amounts due to you under an agreement (e.g. under a loan agreement), you can sue to enforce the agreement. If you win your lawsuit and are not paid, you can at that point attempt to have court officers seize property of the bbuiness to pay you. However, if there is no specific schedule of payments, loan agreement, or other agreement calling for specific payments, but rather it's just that you were supposed to share in any profits (e.g. a percentage of revenue), but the revenue is lower than anticipated, you would have no recourse--whenever anyone invests in a business in exchange for a share of revenue or profit participation, they take the risk that the business will not pay off.

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