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What Is OPM (Other People's Money)?

By BSNS Editorial Team • April 2, 2026 • 3 min read

OPM, or "Other People's Money," is a financial strategy that involves using borrowed or invested funds from external sources to finance a business, investment, or acquisition. Instead of using one's own capital, an individual or company leverages the resources of others to fund their ventures. This strategy is widely used in various industries, including real estate, startups, and corporate finance.

How OPM WorksThe core principle of OPM is to use leverage to amplify potential returns. By using borrowed funds, an investor can control a larger asset than they could with their own capital alone. If the investment is successful, the returns generated will be on the total value of the asset, not just the investor's initial contribution. After paying back the borrowed funds plus any interest or agreed-upon returns, the investor keeps the remaining profit.

Common Sources of OPMThere are many sources of OPM, including: Traditional Bank Loans: This is one of the most common forms of OPM, where a bank provides a loan for a specific purpose, such as purchasing a property or starting a business. Private Money Lenders: These are individuals or companies that provide loans, often with more flexible terms than traditional banks. Hard Money Loans: These are short-term, asset-based loans that are typically used in real estate transactions. Seller Financing: In some cases, the seller of a property or business may be willing to finance the purchase for the buyer. Partnerships: Forming a partnership with individuals who have capital to invest is another way to use OPM. Crowdfunding: This involves raising small amounts of money from a large number of people, typically via the internet.

The Benefits of Using OPMUsing OPM can offer several advantages: Increased Leverage: OPM allows you to control larger investments and potentially generate higher returns. Limited Personal Risk: By using borrowed funds, you can limit the amount of your own capital that is at risk. Faster Growth: OPM can provide the capital needed to scale a business or investment portfolio more quickly. Diversification: By using OPM, you can invest in multiple opportunities simultaneously, which can help to diversify your portfolio and reduce risk.

The Risks of Using OPMWhile OPM can be a powerful tool, it also comes with significant risks: Increased Financial Risk: If the investment does not perform as expected, you are still obligated to repay the borrowed funds, plus interest. This can lead to significant financial losses. Loss of Control: When you use OPM, you may have to give up some control over the investment to your partners or lenders.* Complexity: OPM arrangements can be complex and may require legal and financial expertise to structure properly.

ConclusionOPM can be a highly effective strategy for financing business growth and investments. However, it is not without its risks. It is crucial to have a solid understanding of the investment, a clear repayment plan, and a thorough understanding of the terms of the OPM arrangement. As with any financial decision, it is wise to seek professional advice before using O-P-M.

References Strategic CFO. (n.d.). Other People's Money (OPM). Retrieved from https://strategiccfo.com/articles/investment-shareholders/other-peoples-money/ Express Cash Flow. (2024, March 5). Understanding Other People's Money and the Float. Retrieved from https://www.expresscashflow.com/understanding-other-peoples-money-and-the-float-an-introduction/

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BSNS Editorial Team

The BSNS Editorial Team delivers practical, research-backed guides for entrepreneurs at every stage — from formation and funding to growth, operations, and exit. We distill complex business topics into clear, actionable insights.

Choosing the right business structure is a critical decision for any entrepreneur. Two of the most popular options are the Limited Liability Company (LLC) and the S Corporation (S-Corp). While both offer liability protection, they have significant differences in how they are taxed, managed, and structured. Understanding these differences is key to selecting the best fit for your business [1].

## What Is the Core Difference?

It's important to understand that an LLC is a legal entity type, while an S-Corp is a tax election. This means that an LLC can choose to be taxed as an S-Corp if it meets the requirements. A business can be legally structured as an LLC but file its taxes as an S-Corp [2].

## Side-by-Side Comparison

Here is a breakdown of the key distinctions between an LLC (taxed as a pass-through entity by default) and an S-Corp:

| Feature | Limited Liability Company (LLC) | S Corporation (S-Corp) |
| :--- | :--- | :--- |
| **Taxation** | Profits are passed through to members and are subject to self-employment taxes (Social Security and Medicare) [3]. | Shareholders who work for the company can be paid a "reasonable salary" and receive the remaining profits as distributions. Only the salary is subject to self-employment taxes, which can lead to significant tax savings [4]. |
| **Ownership** | Can have an unlimited number of members, and members can be individuals (including non-U.S. citizens/residents), corporations, or other LLCs [1]. | Limited to 100 shareholders, who must be U.S. citizens or residents. Corporations and partnerships cannot be shareholders [1]. |
| **Management** | Offers flexibility. Can be member-managed (managed by the owners) or manager-managed (managed by an appointed manager or team) [5]. | Has a more formal management structure, with a board of directors and officers. Shareholders elect the board of directors, who then oversee the company's affairs [5]. |
| **Formation** | Formed by filing "Articles of Organization" with the state. | Formed as a corporation by filing "Articles of Incorporation" and then filing Form 2553 with the IRS to elect S-Corp status [2]. |

## When to Choose an LLC

An LLC is often a good choice for new businesses, small businesses, and entrepreneurs who value simplicity and flexibility. The key advantages of an LLC include:

* **Simplicity:** LLCs have fewer formal requirements than corporations. They are not required to have a board of directors or hold annual shareholder meetings.
* **Flexibility:** The ability to choose between member-management and manager-management provides significant operational flexibility.
* **Fewer Ownership Restrictions:** The lack of restrictions on the number and type of owners makes LLCs a versatile option.

## When to Choose an S-Corp

An S-Corp can be a strategic choice for businesses that have grown and are generating significant profits. The primary benefit of an S-Corp is the potential for tax savings.

* **Tax Savings:** By paying a reasonable salary and taking the rest of the profits as distributions, shareholder-employees can reduce their self-employment tax liability.
* **Attracting Investors:** The more formal structure of an S-Corp can be more appealing to some investors.

## Making the Decision

The choice between an LLC and an S-Corp depends on your specific circumstances, including your profitability, long-term goals, and desire for operational simplicity. For many small businesses, starting as an LLC and then electing S-Corp taxation later is a common and effective strategy.

It is highly recommended to consult with a legal and tax professional to analyze your situation and determine the most advantageous business structure for your needs.

## References

[1] Wolters Kluwer. (2025, July 18). *Compare S corporation vs LLC: Differences & benefits*. Retrieved from https://www.wolterskluwer.com/en/expert-insights/s-corp-vs-llc-differences-and-benefits

[2] U.S. Small Business Administration. (2025, March 7). *Choose a business structure*. Retrieved from https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

[3] U.S. Chamber of Commerce. (2025, May 12). *S Corp vs. LLC: What's the Difference?*. Retrieved from https://www.uschamber.com/co/start/strategy/differences-between-s-corp-and-llc

[4] Investopedia. (n.d.). *S Corp vs. LLC: Differences, Tax Benefits & Legal Liabilities*. Retrieved from https://www.investopedia.com/articles/personal-finance/011216/s-corp-vs-llc-which-should-i-choose.asp

[5] Thomson Reuters. (2023, September 8). *What is an S Corp, C Corp & LLC? Which one is best for you?*. Retrieved from https://tax.thomsonreuters.com/blog/s-corp-vs-c-corp-vs-llc-whats-the-difference-and-which-one-is-better-for-your-business/