Personal Finance & Money Asked on April 2, 2021
NY state here. I have a very small single member, member managed (I’m the member) LLC that has elected to be taxed as an S-corporation (this might be important).
The LLC is running a little light on money and I’d like to put some personal money from my checking account into it so that the LLC can cover some operating expenses. I want to do this legally and aboveboard, and I would like this to be considered equity and not a loan (unless a loan is the only way to go here).
Am I allowed to put my own personal money into the LLC/S-corp and consider it an "equity investment" in the company? Is that investment taxable? What are the rules/constraints surrounding this transfer of personal money to company funds?
Overall, simplest way to fund a self-owned LLC is simply to loan it funds. This will allow you to receive back your funding tax-free in the future very painlessly (this may be possible with equity as well, but may be more complex).
It seems your concern is that having a loan owed to you will make a bank see your LLC's balance sheet and consider you higher risk if you want to take a bank loan out in the future. This should not be a concern, because typically a bank will not loan to an LLC without a personal guarantee from you anyway - they understand that a small LLC with minimal assets is at higher risk of going bankrupt, so when they assess the risk of the loan, they will basically be acting as if they are loaning to you directly.
The key benefit to doing this as a loan is that it is easier to do yourself, whereas contributing funds for equity needs either greater delicacy or hiring a lawyer in most cases.
Correct answer by Grade 'Eh' Bacon on April 2, 2021
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