An Initial Capital Stock Contribution is a specific amount of money you noted on your Operating Agreement that you as a shareholder in your LLC with S Corp tax formation would ‘contribute’ to get the business up and running.
This contribution is important because it establishes the financial foundation of the LLC and is used to fund the company's startup expenses and ongoing operations. In addition, an initial capital stock contribution can be used to show that the LLC is a legitimate business entity separate from the personal finances of its owners, which can provide some protection against personal liability in the event of lawsuits or other legal issues.
Note: the terms "Initial Contribution", "Capital Contribution", "Capital Stock" and "Initial Capital Stock Contribution" are interchangeable.
When you notice the below module appear on your Collective dashboard, please follow these steps:
Confirm you have established a business checking account using your LLC with S Corp tax formation federal employer identification number (EIN or FEIN).
Transfer the amount you listed on your Operating Agreement, or an amount between $500 - $1000 of your money from your personal checking account to your LLC's business checking account.
That amount must also match and be reported on your LLC's Operating Agreement. By entering the amount in the module above, we will populate and update the Operating Agreement for you, if it doesn't already reflect the correct amount.
The money you transfer can't be sales or service income from one of your business customers. It must be personal money, invested by you, into your S Corp, as the 100% shareholder in your company.
Once the money is received in the new business checking account, our Bookkeeping by Collective team will categorize this Initial Capital Stock Contribution as "Capital Stock". This is a type of equity account and can be found on the Balance Sheet.
Note: If you have already contributed personal money to your business checking account and/or are a remaining S Corp that is new to Collective, please email us at [email protected]. Our Bookkeeping by Collective team will do a journal entry to account for the Initial Contribution and assist you with clearing the module and updating your Operating Agreement.
Got questions? Please reach out to [email protected].
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.