Belize ~ Investments, LLC and Personal Guarantees
Posted: Tuesday August 27, 2019. 9:08 a.m. CST.
The views expressed in this article are those of the author and not necessarily those of Breaking Belize News.
This article was written by Richard Harrison, Belizean investor in production and service companies in Belize. He holds an MBA from Lancaster University.
By Richard Harrison: Belize needs more investment, savings and consumption.
The basic formula for calculating GDP is: y = c + i + e + g, where y = GDP, c = consumer expenditure, i = industrial investment, e = excess of exports over imports and g = government expenditure.
Countries only develop as quickly as these components of the economy are encouraged, facilitated and realized.
Investment is the main of these components, because it is what creates goods and services and generates wealth, which was once profitable.
However, investments are impossible without savingsâ¦ and without value if the goods and services are not âconsumedâ.
Investments, savings and consumption can be both domestic and foreignâ¦ and both must be encouraged, facilitated and realized.
National investments are as important as foreign investmentsâ¦ .probably even moreâ¦ .because most of the wealth generated by domestic investments remains in the countryâ¦. While the profits from foreign investments are taken out of the country by the people who pay dividends on those investments.
The growth of tourism within a country creates an artificial “home consumption”, since much of what is consumed locally is not consumed by the citizens and residents of the country. It does not reflect the true capacity of the internal market to consume goods and servicesâ¦ the disposable incomes of citizens and residents are artificially âamplifiedâ. Butâ¦ as with electronic amplification, an unbalanced balancer and speakers will only create ânoiseââ¦ not good quality âmusicâ.
Belize’s laws and policies currently allow COMMERCIAL BANKS (all of which are foreign owned and controlled) to require personal guarantees from their borrowers … almost in all cases … even though the country recognizes and offers investors the right to ” operate LIMITED LIABILITY COMPANIES.
A limited liability company (LLC) is a hybrid business entity with certain characteristics of both a corporation and a partnership or sole proprietorship (depending on the number of owners). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The main feature that an LLC shares with a corporation is limited liability, and the main feature that it shares with a partnership is the availability of income tax. It is often more flexible than a corporation and is well suited for sole proprietorship businesses.
An investor pays to form a limited liability company as a vehicle of a business unitâ¦ and can form various LLCs if the entrepreneur has multiple businesses that operate separately. As long as the bank has the level of unencumbered collateral within the LLC to support the investment (banks will normally lend up to 70% of the forced sale value of a secured asset) … it should not be necessary to force the investor to sign a personal guaranteeâ¦ which in so doing endangers all of the investor’s assets, including his house and personal effects. Taking personal guarantees on every investment is the laziest and most destructive way to manage riskâ¦ it discourages entrepreneurship.
While personal guarantees are required in most cases to be able to make loans for investmentsâ¦ ..many potential investments are avoidedâ¦ ..because no entrepreneur is willing to risk his own family homeâ¦. To do so an investment.
Belize’s laws and policies that seek to encourage, facilitate, and effect investment must be urgently reviewed and revised … in order for the LLC to function as it is supposed to.
There are many investors in Belizeâ¦ who may have invested in a business formula that was viable 10 to 30 years agoâ¦ and whose viability may now be in jeopardy due to changing market conditions and laws and government policies over the years. Many of these investors sit around doing nothing … because Belize’s financial system prevents them from doing business … and forces them to honor commitments made at the time of funding … behaving as if they did not know the market, the legal and political changes that have taken placeâ¦ and they have these people by their testicles, having signed PERSONAL GUARANTEES.
These investors may have other assets to start other viable businessesâ¦ ..with a business formula that is relevant for todayâ¦ .but they remain inactiveâ¦ .because then they risk losing EVERYTHING if they do not ultimately cannot solve the challenges. they are facing with one of the particular investments.
Belize does not have too many entrepreneursâ¦ so each is vitally importantâ¦ and none should be permanently stuck in the investment arenaâ¦ due to project failure or failure. anotherâ¦ and we should all see entrepreneurs’ mistakes as learning toolsâ¦ not as justification for their crucifixion.
Belizeans must DEMAND urgent changes in our banking and investment laws and policiesâ¦ ..to unleash the ability of entrepreneurs to create new viable investments using LLC without the risk of PERSONAL GUARANTEE and potential loss of their very homeâ¦ â¦ So that, if they fail in a particular investmentâ¦ which should not be the end of the world, as is currently the caseâ¦ they should be able to move on with their livesâ¦ if possible to revive their struggling businessesâ¦ and create new new business formulas that would be viable given today’s markets, laws and policies.
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