Questions

How should I document my investment into a business for proof of transfer?

How do I go about documenting this and is it tax deductible?

5answers

Yes.

I will also add that you need to document what the funds are for: equity or debt.

A lot people fund their companies with a personal loan to the company for tax reasons.


Answered 5 years ago

Documentation is going to vary depending on corporate structure and type of investment, but essentially it's going to be paperwork stating the date of the transfer, the amount, and what you received in return. Debt investment is different than equity.

Capital contributions (equity investment) and loans (debt investment) are not deductible until they are deemed uncollectible.


Answered 5 years ago

First talk with your Tax Preparer.

There are many variables which must considered, which will be specific to your unique situation.

Way better to work out the correct way to do this before you conduct the transaction.


Answered 5 years ago

Your investment in the business can be documented in a variety of ways. The appropriate documentation will depend upon the type of investment (equity, debt or a hybrid structure), the type of business entity (LLC, partnership, corporation, etc), and the terms of your investment.

If your investment is an equity investment in a corporation, the corporate share registry should be updated to reflect your cash contribution and the number of shares you received. Most corporations also have a shareholder's agreement which corporate shareholders use to outline their rights and obligations amongst themselves.

If the investment is an equity investment in a partnership or LLC, you'll need to sign the LLC operating agreement and update the members' schedule to evidence your investment.

A debt investment in any structure is typically evidenced by a promissory note which is signed by you and the company. The note outlines the principal amount of investment, interest rate, payment terms and other conditions.

An investment in an business is not a tax deductible expense for the investor, nor is the cash contribution considered taxable income to the business. In certain cases where your investment becomes worthless, or the promissory note is deemed uncollectible, you may be able to write off the investment as a capital or ordinary loss.


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Answered 8 months ago

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