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This page will explain what LLC Capital Contributions are and how they’re used.
Capital Contribution Definition:
An LLC Capital Contribution is an investment in the LLC made by its owners (aka Members).
Note: The opposite of an LLC Capital Contribution is an LLC Distribution.
What are LLC Capital Contributions?
LLC Capital Contributions are when LLC Members put money into the LLC.
Capital Contributions are how an LLC Member obtains a Membership Interest in the LLC.
Capital Contributions also “capitalize” (fund) your LLC. Meaning, they give your LLC the money it needs to operate, pay expenses, and ideally, become a profitable business.
Capital Contributions and Membership Interest
Membership Interest is the amount of the LLC someone owns. This is usually expressed as a percentage (like 25%, 50%, 100%, etc.).
Each Member’s Membership Interest is listed in the LLC Operating Agreement.
Your Capital Contribution should be equal (proportionate) to your Membership Interest.
For example, if Bob and Jose each own 50% of their LLC, they will each contribute the same amount of money. For example, they can both contribute $500, $1,000, or $25,000. The amount doesn’t matter, as long as it’s the same.
See the table below for examples showing how LLC Capital Contributions are propionate to LLC Membership Interest.
How to make an LLC Capital Contribution
You can deposit cash, write a check, or transfer money from your personal bank account to your LLC bank account.
This money then becomes the available funds for the LLC operating expenses.
Keeping track of LLC Capital Contributions
Make sure you keep a copy (of the check or a printout of the wire transfer) of each Capital Contribution. You can keep this record digitally or on paper.
If you forgot to keep a copy or receipt, you can also review your bank statements and identify the Capital Contribution(s) for your accountant. Your accountant will need this information at tax time.
If you have a Multi-Member LLC, there should be a separate record for each individual Member’s Contributions.
LLC Capital Contribution Tax Treatment
An LLC Capital Contribution is not “income” to the LLC. Nor is it as “expense” for the individual.
Instead, it’s an individual’s “investment” in the LLC. More specifically, they give money to the LLC, and in exchange, they receive LLC Membership Interest (ownership).
For these reasons, LLC Capital Contributions are non-taxable events.
Are LLC Capital Contributions Tax Deductible?
No, LLC Capital Contributions are not tax deductible because they are not an expense. They are an investment.
The Member contributing the capital will not get a write off. Nor will they face any tax consequences.
And similarly for the LLC itself; it won’t be taxed on receiving the Capital Contribution.
Initial LLC Capital Contributions and Asset Protection
Shortly after the LLC is formed, each of the LLC Members (or the sole Member in a Single-Member LLC) should make an initial Capital Contribution to the LLC.
Making a Capital Contribution is important for the personal asset protection of an LLC.
Most people form an LLC for liability protection (to protect their personal assets).
In order to make sure you get that personal asset protection, you need to properly capitalize your LLC. That means making sure there is enough money in the LLC bank account to make business purchases and pay for operating expenses.
Single-Member LLC Capital Contributions
In a Single-Member LLC, the sole Member can make Capital Contributions of any amount.
No matter how much the Member contributes, they will still have 100% Membership Interest in their Single-Member LLC.
Multi-Member LLC Capital Contributions
In a Multi-Member LLC, the Members should make Initial Capital Contributions proportionate to their Membership Interests.
It’s also a good idea for the Members to make their Capital Contributions within the same time frame. For example, all Members make their contributions on the same day or within the same week.
Example 1: Dave and Wendy own Dandy’s Restaurant LLC. Dave owns 60% of the LLC and Wendy owns 40%. So Dave contributes $60,000 as his Initial Capital Contribution and Wendy contributes $40,000.
Example 2: Sven and Astrid own Loki Stationery LLC. Sven and Astrid each own 50% of Loki Stationery. Sven contributes $47 (his lucky number) as his Initial Capital Contribution, so Astrid also contributes $47.
LLC Capital Contribution examples:
| Number of LLC Members (owners) | LLC Membership Interest | Total LLC Capital Contribution | LLC Members' Capital Contribution |
|---|---|---|---|
| 1 | 100% | $1,000 | Sole Member - $1,000 |
| 2 | Member 1 - 50% Member 2 - 50% | $1,000 | Member 1 - $500 Member 2 - $500 |
| 2 | Member 1 - 70% Member 2 - 30% | $1,000 | Member 1 - $700 Member 2 - $300 |
| 3 | Member 1 - 30% Member 2 - 30% Member 3 - 40% | $1,000 | Member 1 - $300 Member 2 - $300 Member 3 - $400 |
| 7 | Member 1 - 10% Member 2 - 10% Member 3 - 10% Member 4 - 10% Member 5 - 10% Member 6 - 25% Member 7 - 25% | $10,000 | Member 1 - $1,000 Member 2 - $1,000 Member 3 - $1,000 Member 4 - $1,000 Member 5 - $1,000 Member 6 - $2,500 Member 7 - $2,500 |
Note: The contribution amounts above are just examples. The amount of your LLC contributions will vary based on each person’s Membership Interest.
Additional LLC Capital Contributions
The total amount of the Members’ Initial Capital Contributions should be enough to get your business started. But Members can make additional Capital Contributions when the LLC needs more money.
For example: Sven and Astrid only contributed $47 each to open Loki Stationery LLC. In order to purchase products and supplies, they need to make Additional Capital Contributions. Sven and Astrid each contribute an additional $500 so the LLC can make start up purchases.
Members can make additional Capital Contributions at any time. You just need to keep a record of the Contribution. Here is a Capital Contribution form you can use.
What else can I contribute besides money?
Most people contribute cash for their Capital Contribution because it’s simplest.
However, you can also contribute personal property or services to your LLC. These types of non-cash contributions are uncommon, but they are an option.
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
Hello Matt! There is a new single-member LLC owned by a foreign entity. The LLC does not yet have any bank accounts. Can we indicate a $5,000 capital contribution in the Operating Agreement now, i.e. before transferring the contribution amount to the LLC? Are there any timelines for the actual transfer of the contribution from the shareholder’s account, considering that it will probably take some time to open a bank account for the LLC? Thank you!
Hey CJ! Yes, you can put $5,000 capital contribution in the LLC Operating Agreement now. There isn’t a specific timeline to meet, so you can just move the funds whenever they are ready. Also, over the past year, US banks have become stricter regarding non-US resident accounts. Please check out the latest comments on non-US resident LLC bank account for more details. Hope that helps.
Since we sold our home, we’ve been designated as a limited partner in a 13 member LLC which owns a manufactured home park with 21 lots. Ten of the lots have LLC member homes on them with the remaining eleven rented to others. The LLC members want to stop paying rent to the LLC and replace that lost revenue with additional capital contributions to avoid paying taxes. However, they also want to require us to make the same amount of additional capital contributions even though we do not have a home on any lot and would not receive any benefit. Do you have any thoughts as to IRC violations or suggestions for us?
Hi Charles, I’m not totally sure, and this situation sounds complicated.
Capital Contributions and Fairness:
Potential Tax Issues:
Recommendations:
In summary, requiring you to contribute capital without receiving a benefit doesn’t seem fair, and the tax strategy described could be problematic. Hope that helps a bit, and hope you reach a positive outcome. Thank you for your understanding.
Hello! I am about to file my Articles of Organization for my business. My plan is to apply for an SBA loan to fund my startup. So if all goes well, I will have funds from a small business loan, should I file my Articles of Organization and wait to complete my Operating Agreement until I apply and receive a decision on my loan to add the lender to my Operating Agreement? Or is it best to add myself as the sole contribrutor for now and amend the agreement later? Thank you!
Hi VS! You can certainly start the Operating Agreement now. It’ll show your original Capital Contribution. If you later get a business loan later, that’s not a Capital Contribution. It’s simply just a business loan :) Hope that helps.
If I’m moving from a sole proprietorship to an LLC, and I already have a separate bank account for my sole proprietorship and have business funds in that already, is it necessary to make a capital contribution to the newly formed LLC? Essentially, the business already has funds, so I wouldn’t need a capital contribution. Or is a capital contribution something I’d need to do as a “formality” when starting an LLC? Thank you!
Hi KP, great questions. Here’s what I’d do: Open a business checking account in the name of your LLC. Then transfer all the funds from your personal/Sole Proprietorship account there (and mirror that amount as the Capital Contrition in your LLC Operating Agreement).
After I form and approve my Single member LLC, and I got myself two investors who will contribute in company capital and fund the bank account, but the operating agreement does not mention their names just yet because it’s already done for the first year.
And I do not want to wait the remaining months of the year to be able to be collect their capital contributions and update the operating agreement thus transforming the company into a multi-member llc, but I will need to collect their contribution instantly.
What can we do at this situation ? or can we update the operating agreement anytime ? or I can take the funds and wait till the end of the year and update the operating agreement then ?
Thanks a lot for your articles and efforts
Kind regards
Hi Rageh, I’m not sure what the agreement you have with your investors is (do they get equity, equity and profit, just profit, etc.) If there is equity, you should properly document the capital contributions and amend the Operating Agreement. Additionally, you likely also want additional paperwork relating to the terms of the investments. I’d personally hire an attorney for help with this.