Can I Borrow Money from My Own Company?

It is normal for business owners to require additional funding to support their company’s expansion or pay for unforeseen expenses. You might be asking if you can borrow money from your limited liability business (LLC) if you are its single owner. The answer is yes, but there are several crucial considerations.

Maintaining a distinct division between your personal and business funds is of utmost importance. This means that you must document and consider as a loan any money you borrow from your business. The details of the loan, such as the repayment schedule and any interest or fees charged, should be outlined in writing.

It’s also crucial to remember that taking out a loan from your firm may have tax repercussions. For your company, the interest you pay on the loan may be tax deductible; nevertheless, for you personally, it is treated as taxable income. Furthermore, the loan may be viewed as a distribution of profits and be subject to further taxes if it is not repaid in accordance with the terms set forth in the agreement.

An LLC does not completely shield you from liability, but it can offer protection for personal assets in the case of litigation or bankruptcy. For instance, even if your business is an LLC, you might still be responsible for repayment if you personally guarantee a loan for it. Additionally, an LLC won’t shield you from legal action or accusations of wrongdoing in the workplace.

In an LLC, the company, not the individual shareholders, owns the firm and its assets. This indicates that the LLC, not the individual owners, is responsible for any profits or losses made by the business. However, based on their proportion of ownership, the owners do receive a portion of the company’s gains and losses.

The choice between operating as a sole proprietorship or an LLC depends on a number of variables, such as the size of your company, your concerns about personal liability, and your tax situation. In general, a sole proprietorship is easier and less expensive to form up and run while an LLC offers greater security for personal assets and potential tax advantages.

You can offer extra ownership units to current or new members to grant an LLC equity. This can be accomplished by formally amending the operating agreement of the business, and it needs to be confirmed in writing. Based on the quantity of ownership units they possess, the new members will then have a percentage ownership in the business. To make sure that the distribution of equity is done legally and in accordance with state and federal legislation, it is crucial to seek legal or accounting advice.