Initial Contribution on LLC Operating Agreement?

[Josiah Mouw]

My business partner and I currently hold an investment property in our names via an unsecured note. Our initial financing attempt through the broker channel collapsed a week before closing, so we pivoted to a local bank. We'll be transferring title to our recently-formed LLC, and then financing with the same local bank for a number of reasons (not because we think an LLC offers impenetrable liability protection). For our LLC operating agreement, which we need to submit to our bank, what would an investor list for "initial contribution" in our case? Can any of the expenses we've incurred to acquire the property— and rehab the property— be considered initial contributions even though initial financing was not via our LLC? Any advantages or disadvantages?

[Marty Sprong]

Typically, initial contribution is some de minimis mount to get the bank account openned where each of your put in your % of ownership. I've seen as little as $100 be the first deposit. It can be anything. The property that you put into the LLC does have a carry over cost basis, which is what you and your partner paid. This would be an additional contribution (owners equity). Note: If you have not already, you better have a system to save your receipts to have in case of IRS/State audit and invest in QuickBooks (desktop or online - I'm partial to online for ease of access) because your LLC will need to file a tax return. Thus you'll need to provide a P&L and Balance Sheet to your tax return preparer. I assume you and your partner paid those expenses along the same ownership percentage lines? If not, you should true it up, so you both have paid in based on the ownership percentage in the agreement. Just to geek out for a second...on your books, your journal entry for the contribution of the property would be a "debit" to the Property (Asset) Account (you may want to set up subaccounts to track purchase price vs rehab etc) and "credit" the two separate equity accounts under you and your partners name. Since it's an LLC, you are called "members". You can name the account "Member Contribution - 'Member 1'" & "Member Contribution - 'Member 2'". I like to use subaccounts when using equity accounts for draws and allocation of net income/loss each year, but that's for a different post. :) Hope this helps.