Posted by Donnie on July 15, 2006 at 12:46:02:
I think what his attorney meant is that there may be ramifications for using your own money instead of using the corporations money. Hence, the need to capitalize the LLC properly. Using your own bank account could lead a court to say that business was being done outside of the LLC, I would imagine.
Capitalizing an LLC - Posted by Virgil
Posted by Virgil on May 17, 2006 at 20:35:37:
Hello,
I have been advised by an attorney that in order to enjoy the protection that an LLC offers, that it needs to be properly capitalized. Has anybody ever heard of this? He suggested to put aside a years worth of operating expenses in a seperate checking account. The problem that my partner and I are having is we have very minimal operating expenses for our real estate business, we are harnessing the power of networking. So our only real expense would be phone bills, which we already pay for. We were not planning on putting any money into an account to form the LLC. Any advice or input on this topic?
Re: Capitalizing an LLC - Posted by Kathleen
Posted by Kathleen on April 21, 2008 at 06:44:51:
So, can an LLC be capitalized using the beneficial interest, but not the record interest in stock?
Re: Capitalizing an LLC - Posted by John K Haslach, CPA, MST
Posted by John K Haslach, CPA, MST on May 18, 2006 at 14:51:58:
You could have tax issues if you are generating tax losses (which is ideally what you would like to do).
Your losses are limited to your basis. Your basis includes money you contribute plus debt allocated to you. However, if the debt is not recourse or qualified nonrecourse, and you have no other basis, you will not be able to take any loss.
Re: Capitalizing an LLC - Posted by John Merchant
Posted by John Merchant on May 18, 2006 at 11:26:22:
Just form it and use it.
No state, to my knowledge, has any “capitaliztion” requirments for a de jure (legally registered and current with state)LLC.
As a matter of fact I’ve seen the case where an out-of-date, expired LLC (de facto) that was in title on a property, was enough and legally sufficient to kill a lawsuit against the LLC’s owner.
The owner was sued in his name, but he’d done everything on the property in an LLC’s name.
Once the Plaintiff’s lawyer learned of the LLC’s existence and its ownership of the proeprty, and thought through the legal ramifications and complications that the LLC presented (although not current in its state), he and his client began to lose interest in their case as they realized that the Defendant wasn’t going to be an easy victim…and their attorneys’ fees were going to be a LOT higher than originally anticipated.
FYI, the law distinguishes that out-of-date LLC from the totally legal one, as a “de facto” LLC and though a de facto LLC is not always the same value, in that case it was enough to save its owner from great personal financial damage.
Re: Capitalizing an LLC - Posted by BTI
Posted by BTI on May 18, 2006 at 10:11:34:
Virgil
Sounds like a bunch of bs, your llc will be “capitalized” when you put a property into it. So unless this is some state specific requirement which I doubt, it sounds like he is just suggesting you put something into the “shell” to give it “life”, could be a $100 checking account.
Think about it, are investors doing this going to put a years worth of expenses into an account every time they accumalate a few properties and form a new llc for the next ones.
BTI