How to Fund LLCs

Question

I'm looking to best understand the best way to fund an LLC. I did an initial seed fund but not a lot of money (just enough to open up some bank accounts). Eventually, I would like to build up the LLC business profile where I can secure funds (LOCs) through the business. Unfortunately, until that happens, I will need to continue to fund the LLC when opportunities arise.

Question(s) -
1. Does it matter how often I should fund the LLC (i.e. bigger amounts with less frequency or smaller amounts with higher frequency)? Pros/Cons to either path? My default path at the moment is to fund when needed but not sure if there are tax or other implications
2. What kind of records should I keep? For instance, I have a colleague that wants to physically go to a bank to do the funding in order to get a deposit slip as records. My preference would be electronic transfers but wanted to verify those records are sufficient
3. Any guidance on how to note these in the LLC meeting notes would be helpful.
4. Any issues with creating a loan between LLC and myself? Thought about this but it seems complicated and may negate some of the tax advantages. Curious if anyone has thought about or done this.

Thanks for all your help in advance.

Luis Alvarez · Answer

@Tam Nguyen

To your questions:

1. Yes, from a legal standpoint (not sure about for finances, which it sounds like your primary concern is with this), it does matter how capitalization happens. In short, adding little bits of money at a time would (in retrospect) have a court consider the entity as an alter ego of yourself (and your partners) and subsequently "pierce the corporate veil".  Which means the limitation to liability that LLCs shield you from would be collapsed by the court becuase of inadequate capitalization.  However, this only matters if/when any of the assets held by said LLC are jeopardized or facing litigation.

2. Electronic records/statements should suffice since they are no different than deposit slips. The deposit slip only reflects what the  entry was, which is reflected on the statements.

3. You would want to reflect capital contributions from all members in annual minutes (hint: these are not necessary, but a great way to keep up with the corporate maintenance of the LLC, which is a way to keep the "corporate veil". You can memorialize the annual "minutes" by having a professional draft what's called a unanimous consent in lieu of annual minutes.  This documents basically outlines the bullet points of important events/activity of the LLC over the last year.

4. Not sure about what tax advantages you are concerned with compromising by creating a loan between the LLC and yourself (perhaps the others on this thread can chime in with their tax knowledge), but from a papering standpoint, drafting up a Promissory Note from (or to) the LLC from the individual is something that's very plausible and many investors I've worked with (myself included) have used this as a tool.

Basit Siddiqi · Answer

it sounds like you want a mortgage in the name of the LLC?If this is the case, you likely want to speak with a portfolio lender / commercial lender on getting lending.From my communications, the lender will normally require a personal guarantee of any managing member / general partner with a 19%+ interest in the entity.Best of luck.

Adam Bartling · Answer

@Tam Nguyen Your operating agreement tells how much equity each member put in to start the company after that it is your gross profit - expenses.

Get a CPA to assist you, better to pay them and learn and than take on your accounting with no direction.  You can always do your own books after you learn.

FYI I am licensed in CA.