One of the first questions I get after the ink dries on a new business structure is, “Okay, now what?” So I thought I’d talk for a bit about transferring assets out of your name and into your business structure – along with some of the challenges that go with this process.
Transferring your personal assets into your business is generally pretty easy. Make a list of all the assets going into the business (office furniture, equipment, computer, phone, etc.), and their current market values. You might wind up with anywhere from a few hundred to a few thousand dollars worth of stuff. Then, decide how the transfer will be handled – will you loan your company money to buy this equipment from you? Or will you transfer the equipment into the business as part of the capitalization process, and take back stock or ownership interests equivalent to the value of the equipment going in?
The choice is yours. Personally I tend to favor making the transfer via a loan to the company. That way I can take the money back out of the business as it can afford to, and the money isn’t a taxable event – it’s just a loan repayment. Also, the chances are that with a new business to get off the ground I’ve already contributed plenty to making it go – so I probably don’t need more capitalization.
Documenting the transfer is as simple as preparing a set of consent resolutions for your company, authorizing the purchase, loan, transfer – whatever you decide to do. Attach a copy of the list of assets and current market value that you made to the resolutions, sign them, and put them with the rest of your corporate minutes and docuents. If the transfer is being made by way of a loan to your business, it’s always a great idea to also prepare a Promissory Note documenting the loan. Make sure your bookkeeper gets a copy of it, too, so he or she can properly record the loan on your business’s books.
The documents are simple to prepare. In fact, you’ll find versions in both of Diane’s products, the Operation Guide for Your LLC and LP and the Operation Guide for Your Corporation.
Actually that brings me to a good point: make sure your business’s operating document (typically the Bylaws for a corporation or the Operating Agreement for an LLC) allows you to make corporate decisions and take action without having to first call for a meeting! That way, if you’ve got multiple owners you’ve got the freedom to make a quick call or two, send an email touching base with everyone to reach an agreement on what’s going on, and then getting on with it.
The other way involves actually calling a meeting, making sure everyone is there at the same time, either by phone, video, in person, as your operating document permits (something else to check!), and then getting everyone’s agreement before moving forward. In both cases you talk to everyone, but the first method can often be a lot faster to get done, particularly where your business has a lot of moving parts (or people).
Once you’ve got your signed Resolutions, you can then take whatever steps are necessary to transfer the assets from your name to your business. That may involve changing the name on a lease, or transferring title on a vehicle, etc.
When it comes to transferring title to property you don’t own outright, things change a bit. In my next blog post I’ll be talking about some of the special challenges you can face when trying to transfer title to real estate from your name into your business.