What are Capital Contributions?

Capital Contributions Explained

Capital contributions are what your Florida LLC members offer in exchange for an ownership percentage of the company. A capital contribution can be monetary, such as a $5,000 investment, or any other tangible asset, such as real estate and property. Intellectual property and services are also capital contributions.

When you form a Florida LLC, you will need to determine the initial capital contributions of each member and the percentage of ownership that members will receive in return for their investment.

Below, you’ll find an overview of the main details you need to know about capital contributions.

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What Can Be a Capital Contribution?

In theory, almost anything can be a capital contribution. Most contributions are monetary. In order to become a member of your LLC, individuals or business entities offer money, stocks, bonds, or other investments.

Property is common as a capital contribution. Will your Florida LLC need a physical office location? A member might contribute land and a building. Will your company need company vehicles? A member might provide cars and trucks.

More difficult to assess are skills and services offered by members. A member might offer their expertise as a business manager, a perfectly acceptable capital contribution, but one that must be evaluated and assigned a monetary value.

Valuing Capital Contributions

Capital contributions to your Florida LLC must be valued so that you can properly determine the ownership percentage each member will receive. Ownership percentages are generally in proportion to the amount of initial capital invested.

If Member A invests $20,000 into the company, and Member B contributes property valued at $80,000, then Member A should receive a 20% ownership share, while Member B receives 80%.

In the case of property (both physical and intellectual), skills and services, it is best to have the value assessed by an impartial third-party.

Listing in Operating Agreement

Capital contributions are listed in your Florida LLC Operating Agreement. You should list both the initial capital contributions of each member and the ownership percentage they receive in return. In some companies, members are required to make annual contributions to the LLC. In this case, this requirement should be laid out in the Operating Agreement.

Florida LLC Capital Accounts

Each of your LLC members should have a capital account listed in your Operating Agreement. This account lists the value of a member’s capital contribution, as well records the distributions paid out to each member. If disbursements are made, then these would also be recorded. A member’s capital account should keep a running tally of the overall value of the member’s investment in the LLC.

Capital accounts serve another purpose: they value what an LLC member would receive if the company pursued a Florida LLC dissolution and liquidated its assets.

Learn More

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