LLC Capitalization on Operating Agreement

[Jean Leite]

Hello BP community,

I have opened a Delaware LLC early this year where I plan on registering 3-5 rental properties I plan on acquiring in the next 5 years. It is a single member-managed LLC. My question comes from its Operating Agreement: what is the ideal (industry-standard) capitalization I should leave in my LLC to facilitate bank borrowing and shielding against veil piercing in the future? At this moment I'm considering $5,000. Is that too little? Is there a magical formula out there?

Thank you!

[Jerry W.]

@Jean Leite , you appear to have a partial understanding of the way an LLC works, but let me add some other information in case you don't know it. First many states use their own state law to determine if the corporate veil is pierced, not the law of the state where the LLC was formed. Next in order to do business as an LLC you must register in the state the LLC is doing business in, like where it buys rental property. That makes your LLC subject to their laws. How much capitalization you need in an LLC to help avoid veil piercing depends on the company, there is no set rule. If you have one 30K hose with no equity in it and it is owner financed to the LLC, 5K is probably fine. If you hold a 2 million dollar apartment complex and only have 5K$ in your LLC, you are undercapitalized. You will have to personally sign to get a bank loan. Does that help?