Distributions from one LLC to another

[Pedro Morais]

Hi BP,

Can you make distributions from one LLC bank account to another LLC? In other words, if I have a surplus of money in one LLC account and the other LLC has need of capital for construction, can I transfer from one LLC to the other directly or does it have to be distributed to me personally first?

Thanks,

Pedro

[David M.]

@Pedro Morais

Of course, consult a qualified professional or two...

Regardless if your LLC's are disregarded entities (that's just a tax accounting status), you need to follow the 'lines of ownership.' A member taking money out of a LLC is called an "owner's draw." The reverse is a Contribution. You would mark the transaction as such in your ledger.

You really shouldn't just transfer funds between two LLC's unless one owns the other. I believe this is where having a holding company 'at the top of your tree of companies' is useful. You move the funds to the top, or common LLC ownership, then back down. In smaller scale setups, YOU are at the top of the tree. This just means in some sort of audit or lawsuit, your personal banking records will be needed to show the movement of funds to demonstrate that everything was done cleanly/correctly. Having the holding company avoids having to show your personal ledgers (assuming the necessity ever arises).

if you do transfer funds outside lines of ownership, you would need some sort of transactional reason. Otherwise, you are mishandling the funds and thus potentially, or most likely, piercing your corporate veil which is the whole, and usually only, reason to have a LLC.

I hope that helps.  Good luck.