Limited Liability Company (LLC) Capital Structure Laws

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How Is Capital Organized In Limited Liability Companies?

In a limited liability company, commonly condensed to "LLC," financial rights and control of the company through voting rights are given according to contributions to the company. Essentially, this limits the exposure of the owners only to the amount of money they have invested in the company. If an owner has helped the company by making large and unsecured loans or personal guarantees, then that individual owner can usually negotiate a greater amount of protection and control because they added more risk.

What Counts as a Contribution?

A contribution may come in many forms, including:

It is important that you put any agreements for your contributions in writing and keep a record, particularly if voting rights or control of the company depend on the amount of contribution you make. Also be sure to separate out personal loans to the company from contributions.

Is There a Minimum Amount of Contributions That I Need to Make?

No. One of the benefits of a limited liability company is that there is no minimum amount of contributions that any one individual needs to make to be a part of the company. In fact, one may become a member of a LLC without providing anything. Of course, the company may require a minimum amount of contribution, as it does have to consider its capital needs and how to keep itself out of debt.

If I Want to Leave the Company, Can I Take Property Instead of Cash as My Return?

Generally no. To avoid unscrupulous actions that would cripple the company, the law does not allow an investor to leave with property instead of cash, even if the investor contributed the property in the first place. Indeed, of the negative aspects of limited liability companies is that it may be extremely difficult to sell interest in the company. It is possible to negotiate and contract into receiving property instead of cash; however, that is rare, particularly if the company faces large debts that is may have difficulty repaying.

Do I Need an Attorney?

Capital contributions to a LLC often create ownership disputes and may cause otherwise fruitful relationships sour quickly if they are not handled properly. Hiring a business attorney will help protect your investment, the well-being of the company, and yourself from losing money unnecessarily.

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Last Modified: 09-03-2014 10:12 AM PDT

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