Forums: Discussions for entrepreneurs and small business.

This question is probably pretty simple, but I`m having a hard time finding definitive information on this subject. I want to form an LLC with a partner, and we will each contribute a certain equal amount for equal ownership. The question comes: how do we add capital to the organization down the road? Let`s say we`ll only need a few thousand to get started for the first month or so, but will likely need to invest a few thousand more later, which we don`t wan`t to commit right away. We want to make sure that we follow all the rules. Do we just write a check to the company and deposit it in the business account and call it good? Do we have to contribute equal amounts to maintain the 50/50 split in ownership? Help!

For our LLC we just write checks from our personal accounts and deposit them to the LLC account. We reflect the deposit as member investment "Rec`d Cash from Member as Investment" and credit the Member`s capital accounts on our books. For cash withdrawls we reflect it as "Member Cash Withdrawl" and debit their drawing account on our books.

It is usually a pretty straightforward process with cash. I think it might be more tricky if you contribute inventory, equipment, or services.

To my knowledge there are not set "rules"...I would just make sure you leave a paper audit trail, just in case!

It also might be a good idea to consult with your accountant for specifics.

James

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James Skinner Vice President & COO OnlineSiding LLC jskinner@onlinesiding.com www.onlinesiding.com 877-642-2496 x102

Yukon:
The "rules" should be spelled out in your Operating Agreement...you do have one, right?

In a nutshell: you can contribute cash, services, property, etc. One other important thing: if you loan the money to the company (or sign a guarantee), it increases your basis for pass thru of income/loss so you (or your accountant) need to keep track of what, when, balances, etc.

As far as maintaining the 50/50 relationship: that is also part of the OpAg. Generally, the reason people pick the LLC is because it is less formal and allows more flexibility in use of special allocations of profit/loss, distribution of gains, etc. on a non-prorata basis.  (Ex) you contribute services while your partner writes a check. The two of you agree that he gets an extra 5% of profits to cover his cash that was tied up during the year.)



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"So often times it happens That we live our lives in chains And we never even knew, we held the key." -- The Eagles

Thanks! That`s exactly what I needed to know!