How Do I Contribute Money to My LLC? - All Up In Yo' Business

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***If you are starting a single-member LLC, or a multi-member LLC, there are two ways that you can give money to your LLC to use your own personal assets to capitalize your business:

1. As a member contribution.

This is the easiest way to give money to your LLC. You just call any personal money or assets that you contribute to the LLC a “member contribution.” As opposed to a loan, where you have to document the loan and repay it to yourself according to its terms, you will basically earn back the contribution over time through distributions from your LLC.

In a multi-member LLC, members will make member contributions in exchange for their proportional membership interests. So let’s say, for example, Bill & Ted want to start a business and need $10,000 to do it. If they wanted to have 50/50 ownership of the business (which I wouldn’t recommend!), they would each make a $5,000 member contribution in exchange for a 50% membership interest. If Bill wanted to be the primary decision maker, on the other hand, he could contribute $6,000 for a 60% controlling membership interest and Ted could contribute $4,000 for a 40% membership interest. Since member contributions affect a member’s ownership, it is much more common in a multi-member LLC for a member to make a loan to the business (which wouldn’t affect the % ownership) than it is in a single-member LLC.

2. As a loan.

As I mentioned above, member loans are much more common in multi-member LLCs than single-member LLCs. This is because a loan will allow a member to put more money into the LLC without affecting his or her proportional membership interest.

Side note: if a member is going to make a loan to a multi-member LLC, it is very important that the Operating Agreement of the LLC specify the order of debt payoff if the LLC dissolves. Typically the Operating Agreement will state that any outstanding debts to members will be paid after debts to other creditors.

Whether to call a contribution in a single-member LLC a member contribution or a loan is really a personal choice. But if you do decide to call it a loan, it is very very important that you actually treat it as a loan from you to your business. This means drafting and abiding by a promissory note setting for the terms of the loan, the interest rate, repayment terms, etc. You would have to sign that promissory note twice: personally as the lender, and in your capacity as the business owner and the borrower. You also cannot put higher priority on your own loan if the business has other debts. In a nutshell, if you want to make a loan to your single-member LLC, the most important thing is to remember that you personally are loaning money to a separate business entity. It is a real loan to a business, and it has to be treated as such.

Contact Aiden and learn more at www.180lawco.com.

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