Documenting Contributions To Your LLC

hey guys clint coons here and in this video we're going to talk about how do you document the contributions you're making to a limited liability company okay let's get started now if you've looked at your llc you probably have an operating agreement that may have what is referred to as a schedule a or maybe it's an exhibit a it's at the back of the operating agreement after the signature page and on that page typically it's going to list out who the members of the llc are and they're going to want to know contributions okay and they're typically you want to also know ownership percentages depending on how your llc is set up so it has this schedule now not all operating agreements are structured this way some may actually incorporate this into the actual operating agreement itself maybe in an article two it says here you know below are the following members and it lists out their ownership percentage and their contributions and so a lot of people when they see this they get hung up on having to complete this schedule a because they don't understand what it actually represents so for example let's assume that i set up an llc for for myself and my wife and we put our names down here clint tracy all right and you know ownership well of course you know she's going to step in and say she owns 90 i only get 10 okay so uh happy wife happy life so she gets the 90 i got my 10 now the contribution so how much did you contribute to this llc well if i put in real estate well you list the real estate you contributed but if you put in cash let's say we started out we opened up a bank account and we put in uh a thousand dollars into our bank account well what i would typically do is on this schedule i'd put 900 from her 100 from me so next week we decide we're going to move in 30 000 into this limited liability company we're going to put that into the llc's bank account this is where problems start to arise when people look at this they think okay what do i do with that extra 30 000. i need to put it on this schedule a somewhere so we know that i put in 30 000 so do i take 90 of that put 27 000 here and put 3 000 here and scratch out this or something like that the answer to all that is no okay you see this schedule a and all the stuff tracking contributions when it's just you or you and your spouse it's not relevant it doesn't matter okay that you keep track of it all that's going to be covered on your tax return it'll show up there your cpa is going to ask you well it depends on actually how it's structured if it's a disregarded entity it's not even relevant it's only when the entity is set up to be treated as a c-corp s-corp or partnership that we you may want to track this but on this contribution schedule itself your tax return will typically cover all of that so why do they include these in the operating agreements and why are you getting all confused when you're looking at it and then thinking hey you're messing something up and somebody's going to pierce the veil well it's because nobody typically explains it to you that this type of of tracking isn't that important until you're in a situation where there's a joint venture partner meaning it's not your spouse it's not just you you're bringing something someone else to the party so let's assume that i set up this llc and it's between myself and my partner toby so clint's here toby's here and we're both 50 50. now the reason why we want to keep track of our contributions to the llc why it's important is because just because we're 50 50 owners it doesn't mean that we're both going to contribute the same amount to get this company started many times when you're setting up llc's i'll have partners tell me you know toby's going to be doing a lot of the work right clint's not going to be doing a lot of work clint's putting the money in so toby possibly contributes five thousand dollars to the to this joint venture llc but he's going to be working and finding the deals and i'm putting in 95 000 to help fund that first deal so even though we're 50 50 you see i've put in more money and then maybe four months from now there's another deal that comes around and i need to contribute another hundred thousand dollars so i'm going to mark that on my schedule so i'm going to keep track of mine that i'm putting in and the reason why you want to do this is twofold the first reason is that when it comes to distributions right let's say that we liquidate the llc and we sell all the assets and we have three hundred thousand dollars inside of our llc a lot of people will look over here and say well you guys are 50 50. so you're going to split it 50 50. 150 to toby 150 to clint well that's not the way llc's work the first thing you're going to look at and this llc by the way is going to be treated as a partnership for tax purposes because there's two of us all right i should have said that earlier um what's going to happen here is we're going to take this 300 thousand dollars and the first thing we're going to do is we're going to say hey how much have the members contributed to that llc versus how much have they pulled out so if i put in 195 thousand dollars and i never took a nickel out of it then when it comes to distributing out the 300 the first 195 is going to go to clint okay because that's repayment of what i contributed toby if he never took any money out he's going to get 5 000 so that's going to go to toby so now we're made whole i got all my money back toby his money back then with the remaining amounts of money which is going to be 100 000 that's when we're going to split it 50 50. so i'll get 50k to toby's going to get 50k to toby now some people are going to say well clint you actually received 145 245 000 no i didn't all right all i'm doing is i'm being re repaid so when you're working with someone else it's key that you keep track of the money that goes in and goes out because these numbers will fluctuate let's assume that we borrowed money on a piece of property and i took out a hundred thousand dollars well then that's going to wipe this out because i'm no longer owed that i took 100k out already on when we did the refi so in this example here then instead of getting 195 i'm only going to get 95 and that's going to free up 200 000 to be split 50 50 on the sale of the property if that's on the liquidation of this company so when it comes to llcs tracking your contributions if it's just you your spouse you don't need to worry about that unless it's treated as an s or a c corp then you're going to need to track it and you're going to do that with your cpa but if you're dealing with a third party if you're going into a joint venture typically it's going to be a partnership you want to keep track of that the other reason why you typically will do this as well is that if i made an obligation in order to have my 50 interest to make a contribution of 95 000 and i never make the contribution it's going to give you a means then to go back to that other partner and say listen if you don't contribute the money you're out because your money was contingent upon that 95 000 i mean your ownership interest was contingent upon that 95 000 contribution you didn't make it so you're not a 50 owner so you can't claim you're entitled to 50 of the profits in a future date can kind of get down into the weeds but i just wanted to lay out for you documenting contributions can be important or not so important based on who are the members in your limited liability company all right guys again if you like the video be sure to hit the like button subscribe if you're not already a subscriber and if you want to set up a strategy session check the show notes we got a great link in there we can set up a free strategy session with someone at anderson to look at your situation take care [Music] [Music] bye

Channel: Clint Coons Esq. | Real Estate Asset Protection

Views: 22,315

Keywords: brokerage account, real estate asset protections, asset protection, real estate llc, real estate attorney, new llc, documenting contributions

Id: 7grVomX8wC4

Length: 8min 13sec (493 seconds)

Published: Thu Oct 14 2021