How to Add Capital Contributions to an LLC

By David Carnes

An LLC, or limited liability company, is a business vehicle structured as a hybrid between a partnership and a corporation. State LLC laws are designed to meet the needs of small businesses by allowing LLCs to operate with considerably more flexibility than a corporation. LLCs obtain the money they need to operate through capital contributions.

LLC Structure

Compared to a corporation, an LLC enjoys reduced legal formalities and a more flexible management structure. You can form an LLC by filing Articles of Organization with your state government and paying a filing fee. Once the LLC is formed, it is treated as a legally independent business entity; its owners, known as members, enjoy limited liability. The ownership percentage of each member is determined by the amount of capital he contributes, unless the LLC has adopted an operating agreement that states otherwise.

Capital Contributions

A member makes a capital contribution to the LLC when he transfers money, property or services. The capital contribution then becomes the property of the LLC. A member who adds capital to an LLC buys an ownership stake, which normally entitles him to a proportionate share of LLC profits and voting rights. Members make capital contributions when the LLC is first formed and at any time during the LLC’s lifetime, as long as all members agree.

Ready to start your LLC? Start an LLC Online Now

Member Capital Accounts

Individual capital accounts are created to receive contributions to the LLC from each member. The capital account reflects how much money the member would receive if the LLC dissolved, liquidated its assets, paid its debts and distributed remaining proceeds to each member in proportion to his ownership percentages. The balance in each member’s capital account initially equals the value of his first capital contribution. This balance can be adjusted up or down even with no further capital contributions if the LLC takes on debt, its property appreciates or depreciates, or its cash earns interest.


Making a capital contribution to an LLC is usually a fairly simple matter. The member transfers money or property to the LLC by transferring money into the LLC’s bank account, for example, or by transferring title to property to the LLC. The contribution is recorded by crediting the member’s capital account by the amount of the contribution. The member’s cash account -- the account created to allow the member to receive distributions of profit from the LLC -- is then debited by the same amount. Contributions of property must be appropriately valued before adjusting accounts to help avoid occasional complications.

Ready to start your LLC? Start an LLC Online Now
Can You Form a LLC With Your Multi-family Property?


Related articles

Can I Have a Partner With an LLC?

A Limited Liability Company is a common business entity that may be owned and managed by one or more individuals. LLCs, formed and managed under state law, are relatively simple to set up, and allow for a flexible management structure. Unlike a partnership, LLC owners, known as members, are not personally liable for the debts and obligations of the company.

LLC Vs. S Corp Profit Sharing

A limited liability company, or LLC, and S corporation are both popular business structures that usually protect their owners from liability in their personal capacities. An LLC's owners are referred to as "members," while an S corporation's owners are referred to as "shareholders." Whether you're picking the appropriate entity for a business or trying to divide the profits of an existing business, you'll need to carefully consider the profit sharing rules that govern both forms of ownership.

Can You Fill Out a 2553 Before the Articles of Incorporation?

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business can submit this form, it must first qualify for S corporation status and must file articles of incorporation with the state to incorporate the business.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Use an LLC for Vehicle Ownership

A limited liability company, or an LLC, is a business structure that protects the owners, or members, from liability ...

How to Transition an LLC to a Corporation

Electing to convert a business from an LLC to a corporation is subject to the laws of the state where the limited ...

How do I Get Out of an LLC Partnership?

A limited liability company, or LLC, is a form of business entity created by state LLC statutes. An LLC combines the ...

How to Release a Member From an LLC

While a limited liability company might share some common characteristics with a corporation, the process of exiting ...

Browse by category
Ready to Begin? GET STARTED