Can I loan my single member LLC money that it's going to immediately use to buy the business assets from me?

Asked almost 3 years ago - Austin, TX

I created an Single Member LLC (in a hurry) and made a capitol contribution of 100 dollars. Now I need to provide more money and transfer tools and equipment. My assumption is that I now need to do a promissory note for the cash that the business needs + funds necessary to buy the equipment from me, then do a bill of sale to transfer the equipment. Or Is it more advantageous just to do another capitol contribution? If i do this, Should I get the bill of sale and promissory note notarized, or file them in public record, since otherwise the only two people seeing/signing the docs are ME and ME?! :Oh and… will I need to pay sales tax on the transfer of the goods? It all feels a little weird- me loaning money to the business (of w/ I am the sole member) so I can buy stuff from myself.

Attorney answers (3)

  1. Christopher Thomas Staiti

    Contributor Level 9

    1

    Best Answer
    chosen by asker

    Answered . You and your LLC are to separate legal entities. So long as your transactions are documented and reasonable you should be fine. As far as whether you should treat same as another capital contribution or a loan is a question for both a lawyer and your CPA. Your lawyer should be able to tell you if a $100.00 capital contribution is legally sufficient to start your business venture. Your CPA should be able to tell you which is the most advantageous from a dollars and sense perspective.

    In the event that the size of your transaction doesn't justify the expense of contacting these professionals, then the safer course of action may be to treat them as another capital contribution or give yourself a "rental" rate and keep the tools in your own name.

    What ever you do, just recognize that you and your LLC are two different legal entities and that your conduct may someday be held to a reasonableness standard.

  2. Bryant Keith Martin

    Contributor Level 18

    Answered . Either way is legal and effective. Using the promissory note might reduce questions about valuation of the tools, but the net effect is the same. The question is the presentation. Which looks better on the balance sheet to outsiders, i.e., lenders, investors and future employees? I would defer to your CPA on that point. Notarization goes only to authentication of the signature, so I don't see the necessity here. Filing in the public record is not necessary. What you are doing is building a record so if you ever are questioned, you can show how you valued the tools and a bill of sale to show they were transferred. Sales taxes? I doubt that you would recognize gain on the tools that would be taxable, but I am not sure. You should transfer them to the LLC at book value. Check with your CPA to be sure. The transfers to the LLC will increase your basis in your interest in the LLC.

  3. Christopher Thomas Staiti

    Contributor Level 9

    Answered . You and your LLC are two separate legal entities. So long as your transactions are documented and reasonable you should be fine. As far as whether you should treat same as another capital contribution or a loan is a question for both a lawyer and your CPA. Your lawyer should be able to tell you if a $100.00 capital contribution is legally sufficient to start your business venture. Your CPA should be able to tell you which is the most advantageous from a dollars and sense perspective.

    In the event that the size of your transaction doesn't justify the expense of contacting these professionals, then the safer course of action may be to treat them as another capital contribution or give yourself a "rental" rate and keep the tools in your own name.

    What ever you do, just recognize that you and your LLC are two different legal entities and that your conduct may someday be held to a reasonableness standard.

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