If you're setting up your LLC with an S Corp tax structure, one of the first steps you'll encounter is making an Initial Capital Stock Contribution. This might sound a bit formal, but it's really just about getting your business's finances off to a great start.
What is an Initial Capital Stock Contribution?
This is the amount of money you decide to put into your business to get things moving. You'll have noted this amount in your Operating Agreement as a shareholder of the LLC. This contribution is crucial as it serves as the financial bedrock of your company, funding initial expenses and daily operations.
Why is it Important?
Your Initial Capital Stock Contribution does more than just provide funds to cover the startup costs—it also helps establish your LLC as a legitimate, independent business entity. This separation is important because it can protect your personal assets from business liabilities, such as legal claims or debts.
Common Terms You Might Encounter
The terms "Initial Contribution," "Capital Contribution," "Capital Stock," and "Initial Capital Stock Contribution" are used interchangeably. So, don't get confused; they all mean the same thing in the context of your LLC setup.
Steps to Making Your Contribution
When you notice the below module appear on your Collective dashboard, please follow these steps:
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Establish a Business Checking Account: Make sure this account is set up under your LLC’s name, using its federal employer identification number (EIN or FEIN).
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Transfer Funds: Move the amount specified in your Operating Agreement—from $500 to $1,000 or the amount you've listed—from your personal checking account to your LLC's business checking account. Remember, this should be your own personal money, not income from sales or services.
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Update Your Operating Agreement: If the initial amount isn't correctly listed in your Operating Agreement, don’t worry. By entering the amount in the module on your Collective dashboard, we'll update the Operating Agreement for you.
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Record Keeping: Once the transfer is complete, our Bookkeeping by Collective team will categorize the transaction as "Capital Stock" in your accounts, which you'll see reflected in the Balance Sheet section.
Already Made Your Contribution?
If you've previously contributed personal funds to your business or are newly transitioning to an S Corp status with Collective, just drop us an email at hello@collective.com. Our team is here to help with any adjustments like journal entries and to ensure your Operating Agreement is up to date.
If you have any questions or need further clarification, please reach out to us at hello@collective.com. We’re here to make sure everything regarding your initial contribution goes smoothly!
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.