Today’s post deals with the conundrum, how to account for business expenses without a company bank account, and how to set up a company without business funds?
Q.: “I recently formed an LLC to create an online store. Because I saved diligently I had enough money in my personal savings account to cover all setup costs for the company (ex: LLC formation, website development, logo creation, etc.). I have initially paid for all business-related expenses with my personal AMEX because I did not yet have a business bank account set up.
A lawyer told me that I would be able to account for the use of my personal AMEX/savings by issuing promissory notes from my business to my personal self. I wanted to know how you would suggest using my personal funds to fuel my startup and how I should properly account for this in my business books in order to keep my personal and business separate.”
A.: The attorney you spoke to had a good point: If you are treating the money you put into the company for startup as a loan and not as a capital contribution, a promissory note would be in order. Make sure you also provide for a reasonable interest rate–the IRS doesn’t look kindly upon no-interest loans. Somewhere between 4 percent and 6 percent is common–and state when the company will start making payments. In addition, you may want to have the LLC issue “minutes” (a brief write-up) acknowledging your contribution and confirming that the funds will be repaid.
However, as to setting up your books and deciding how much should be deemed a capital contribution and how much should be a loan (if any), it’s best to speak to your accountant. Definitely set up a separate bank account for the LLC. Once that decision has been made, a bookkeeper can help you keep track of it.
This entry was posted on Friday, June 19th, 2009 at 1:15 pm and is filed under Basic Training, Business Start-Up. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
