Taylor Legal Blog

What is a Capital Contribution to a Business?

Posted by Katherine L. Taylor, Attorney and CPADec 02, 20210 Comments

Has your lawyer or accountant asked you what the amount of your capital contribution is? Do you know how to respond?

A capital contribution is the amount of cash or other assets that an owner contributes to the company at the company's inception or throughout the life of the company. 

In the beginning, when a company is starting up, the owners usually transfer some cash or assets to the company (this is true for both LLCs and Corporations). The owner's capital contribution is the total value of the cash and assets contributed. The capital contribution amount is factored into the owner's equity as well as the amount that the owner would get out of the company should it be sold or liquidated. 

After the initial contribution, there could be times during the life of the business when a cash injection is needed: for instance, one or more of the owners decide they're going to put more cash or contribute additional assets, into the business. If that happens, each of those owners' capital contribution accounts is increased by the value of that owner's additional contribution. 

It is important to remember to discuss this with your accountant or lawyer when you start your company, and again when additional capital contributions are made. 

KATHERINE L. TAYLOR, ATTORNEY AND CPA

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