Initial Capital Contribution in a Single-Member LLC

Learn about making an initial capital contribution to an SMLLC.

By , Attorney
Need Professional Help? Talk to a Business Law Attorney.

There was a problem with the submission. Please refresh the page and try again
Full Name is required
Email is required
Please add a valid Email
Phone Number is required
Please enter a valid Phone Number
Zip Code is required
Please add a valid Zip Code
Description is required
By clicking "Find a Lawyer", you agree to the Martindale-Nolo Texting Terms. Martindale-Nolo and up to 5 participating attorneys may contact you on the number you provided for marketing purposes, discuss available services, etc. Messages may be sent using pre-recorded messages, auto-dialer or other automated technology. You are not required to provide consent as a condition of service. Attorneys have the option, but are not required, to send text messages to you. You will receive up to 2 messages per week from Martindale-Nolo. Frequency from attorney may vary. Message and data rates may apply. Your number will be held in accordance with our Privacy Policy.

You should not send any sensitive or confidential information through this site. Any information sent through this site does not create an attorney-client relationship and may not be treated as privileged or confidential. The lawyer or law firm you are contacting is not required to, and may choose not to, accept you as a client. The Internet is not necessarily secure and emails sent through this site could be intercepted or read by third parties.

Protect Your Business

Create your LLC with Nolo

When establishing a new single-member limited liability company (SMLLC), you'll want to provide some kind of initial investment in the business. This type of pay-in is technically known as a capital contribution. Most often, a capital contribution will be in the form of cash—for example, you invest $5,000 of your personal savings in the new SMLLC. However, LLC laws allow for several different kinds of capital contributions, including:

  • money
  • property
  • services; or
  • a promise to contribute money, property, or services in the future.

Whatever you contribute—money, property, or services—becomes the property of the SMLLC.

An initial capital contribution is commonly seen as being given in exchange for membership in an LLC. However, while not typical, a person could contribute something to a company without being given membership, and a person could also be given membership without making any contribution.

Making An Initial Contribution Is Strongly Recommended

While most people do make an initial capital contribution, legally it is not required. You could simply appoint yourself as the sole member of your SMLLC without making any initial investment. However, you'd probably be taking a significant risk if you didn't invest at least a small amount at the outset. Without any capitalization, your business may not appear to be truly separate from you, personally. In other words, without any initial contribution, if your business is responsible for someone being injured, or incurs a debt that it's unable to pay, a court might decide that your company suffered from inadequate capitalization. It therefore might allow someone with a claim against your business to "pierce the veil" of limited liability associated with your SMLLC, and go after you, personally, for restitution.

Making a money contribution can be very simple: You write a check from your personal account and deposit it in your new business account. Moreover, you don't necessarily have to invest a large amount—for some very small businesses, a few hundred dollars might be plenty. The main point is to pay in enough money to meet your initial expenses. Then, going forward, it's important always to keep enough capital in your business to meet your reasonable, ongoing expenses. (This last point is generally a requirement under states' LLC laws.)

Making a contribution in the form of property or services can be somewhat more complicated. The complications mainly relate to potential tax consequences. In most cases, a key issue will be determining the dollar value of the property or services contributed.

For example, if you contribute a piece of real estate you already own that is worth more than when you first acquired it, you'll need to know how much the value increased before you contributed it to your new company. Then, if you ever sell your membership—in effect, sell your company—you'll have to pay taxes on that amount of increased value. Similar tax issues arise relating to property value if you take profits from your company within two years of the date that you contribute the property. Briefly, the IRS may view the taking of profits in such cases as a disguised sale of the property. For further guidance on this point, you should consult with a tax professional.

If you intend to contribute services in exchange for your membership, you'll need to record the value of those services on your company's balance sheet. In turn, you'll need to pay taxes on the value of those services, just as if you'd been paid for them as an employee.

For any LLC, an initial contribution usually is exchanged for some portion of ownership in the new company. This ownership portion is called a capital interest. A member's capital interest generally is equal to the percentage of the company he or she owns. While figuring out this percentage can sometimes be complicated in the case of multi-member LLCs, in the case of an SMLLC the matter is straightforward: The single member clearly has a 100% capital interest in the company.

For additional information about forming an SMLLC, check out the other articles covering formation in the SMLLC section of the Nolo website. For detailed questions regarding tax implications of capital contributions, check out or speak with a tax expert.

Start Your LLC Today

Protect Your Business With Nolo.