It is possible to borrow money from a limited liability company in which you are a member. The specific manner in which you do so depends on whether you have elected to treat your LLC as a corporation or as a pass-through entity for income tax purposes, and whether there are other members. If there are other members, you must get their approval. If you are treating the LLC as a pass-through entity, you do not need to borrow money from it -- you can just take cash out of the company as a draw. You will pay or will have paid income taxes on the money anyway.
Contact any other LLC members, and get their approval in advance, in writing.
Draft a promissory note. The note should specify the terms of repayment, any collateral and a fair market interest rate. This rate should at approximate the interest rate the LLC pays to its own creditors. At a minimum, use the interest rate the IRS charges on overdue debts. Make sure the transaction would be a reasonable transaction even if the loan were to someone else.
Record the loan as an asset on the company's financial statement. If anyone buys or sells an interest in the LLC, that promissory note is an asset of the company and is material information, as is the status of the loan, whether it is delinquent or if it is being repaid on time.
Tips & Warnings
- Some states restrict the ability of companies to lend to their own owners or directors. You may wish to speak with an attorney or accountant prior to entering the transaction.
- Don't commingle business and personal funds. This could endanger the limited liability protection of your entity.
- The Business Owner: Before You Borrow From (Or Lend to) Your Company
- Tools and Techniques of Income Tax Planning: Stephan Leimberg, 2009
Can I Take a Loan Out Against My Savings Account?
You can secure a debt using any form of collateral, including a savings account. A lender may permit you to use a...
How to Get a Personal Bank Loan
Banks typically review your credit history, income and employment when evaluating a personal loan application.
How to Get a Home Improvement Loan
If your house is several years old, it is probably time to make some major improvements. Updating items such as flooring, countertops...
How to Borrow From Your Life Insurance Policy
The cash value of a permanent life insurance policy can be a quick source of funds during a financial emergency. Unlike term...
Can Anyone Take Over Payments on a Car Loan?
Get a new owner of a car to take on an existing car loan obligation or acquire a new loan through conventional...
How to Get Business Loans With an LLC
Unfortunately, some businesses may end up failing and closing their doors because they lack the funds to keep afloat. Loans are sometimes...
How to Set Up Your Own Self Directed IRA LLC
Some investors aren't satisfied by the returns and safety of capital in traditional IRA investments such as mutual funds, stocks and bonds....
Can You Take a Business Partner Off of a Bank Account?
Removing a partner from a joint account ranges from difficult to impossible. You may have to dissolve the partnership.
Can I Borrow Money From My S Corporation?
If your S corporation has excess cash, it may be tempting to take some of it out in the form of a...