I am the sole member of an LLC. What is the best way to make capital contributions to your LLC. Can you do this in the form of a loan? How do you document these capital contribution loans to make sure the LLC pays you back? What are the typical interest rates associated with these loans. Pls advise.
A loan is not a capital contribution. A capital contribution is made in return for the issuance of membership certificates. A deposit should be made to the LLC bank account and shown on the LLC's books. A loan can be documented with a promissory note signed by the LLC. Interest should be at market rate. Today that can be 3-5%.
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You have to make capital contributions to your LLC that are "adequate" just to make it a legally operational entity, to avoid your corporate/LLC veil being pierced. Those contributions don't get paid back. Please see the guides linked in my response below, written for non-lawyers, that explain and provide forms for operating a business entity in CA.
It would be a good idea to hire a good business lawyer and CPA for your LLC, too.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
It is important to distinguish your capital contribution (in exchange for which you receive your membership interest) from loans (which are to be repaid).
The LLC Operating Agreement should have an exhibit that states the amount of your capital contribution. You should make a deposit of that amount into the LLC's bank account. If your LLC has membership certificates, you (as a member) are entitled to have one made out in your name, showing your membership interest (100%, or all of the Units), and signed by you as the Manager (which role should be specified in the Operating Agreement).
Each loan should be documented by a loan agreement and promissory note. To avoid "imputed interest" problems, the interest rate in each case should be at least as great as the relevant Applicable Federal Rate - please see the first link below.
It is important that the LLC be sufficiently capitalized, that separate LLC bank account and accounting books be maintained, and that the loans be documented appropriately to avoid "alter ego" problems - please see the second link below (discusses corporations, but applies similarly to LLCs).
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
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