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How does the money work in an LLC?

When you consider the type of entity you want to form for your new North Carolina small business, one of the major considerations is how the money will work. You have numerous reasons for starting a business, and one of them is to make money.

When you asked for suggestions regarding entity formation, you probably received an earful about limited liability companies. While numerous benefits exist in forming this entity type, one thing you need to know is how the money works.

What you put into the company

You will make a monetary contribution to start the business. You essentially buy your membership into the LLC. As a member, or owner, legally, you are not an employee. The money you put in gives you the right to a share of the company's profits and losses. The amount of your "capital contribution," as it's called, determines your share of the business. The LLC's capital account reflects your initial contribution, along with any subsequent ones. It also records your share of the profits and losses.

How much you contribute depends on the startup needs of the business and the number of members. The operating agreement will probably specify what the company needs and outline the contributions of each member. You must make at least an initial contribution or the LLC could end up disregarded, which means you bear all of the personal liability for the business, which is what you hope to avoid with this entity.

What you take out of the company

When it comes to receiving your share of the profits, that amount is only limited by the company's operating agreement. If you are the only member, then you may take out what you want, as long as enough remains to cover the LLC's operations. A multiple member LLC often limits the amount each member can take out of the company in the operating agreement. This ensures that everyone gets a fair share. How that is determined is up to the members.

When starting an LLC with other people, you may want to take steps to make sure that you will receive what you believe you should from the company. Even amongst friends, you are the only one who can protect your rights. Before signing anything or handing over even one dollar, you may want to review all of the relevant documentation with an experienced South Carolina attorney.

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