The Transfer of Assets to an LLC
Entrepreneurs generally transfer personal assets to a limited liability company to get the venture up and running. They transfer such resources as equipment and cash to make sure the LLC has the necessary ingredients to operate. Converting personal assets into business resources has accounting implications, and financial norms dictate how bookkeepers must record transfer transactions.
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LLC
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An LLC is a business or investment structure that enables owners to separate their personal interests from the firm's activities; the organization is a separate entity. It can sign contracts, negotiate business agreements and acquire assets. It also may be party to a lawsuit, and a court of law may require that it pay money if the judge finds the firm guilty of wrongdoing. The key thing to remember is that the LLC's operating activities do not concern its equity holders, and they don't lose money or take responsibility on behalf of the business.
Legal Context
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Government officials have set the LLC form of business incorporation to improve economic activity and put into place a regulatory framework conducive to entrepreneurship. Start-up owners who choose the LLC form of incorporation must file articles of organization with proper state authorities and pay corresponding fees. The articles typically tell the public what the company is about, products and services it will sell, its main sponsors or equity holders, the firm's financial information and the profit-sharing agreements. Unlike a corporation, also known as a C corporation, an LLC prevents double taxation. This means all profits generated from the venture flow tax-free to equity holders, who must then pay taxes at a personal level.
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Asset Transfer
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Transferring assets to a newly formed LLC is standard practice. Equity holders convey their personal or business interests into the firm to get it up and running. The transfer of shareholder-owned resources also happens in an established LLC. Assets are economic items a person or business relies on to operate. There are two types of asset: short term and long term. Current, or short-term assets, serve in operating activities for 12 months or less. Examples include cash, accounts receivable and inventories. Long term assets are those resources an entrepreneur uses for more than one year. Examples include fully paid equipment, land and cars. When equity holders transfer their own assets into a business, they no longer hold any ownership rights to the resources -- these become the firm's assets.
Accounting Implications
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LLC asset transfers have accounting and financial reporting implications. To record a transfer, a bookkeeper debits the corresponding asset account and credits the owners' equity account. At the end of a period, such as a month or quarter, financial managers show newly added assets and owners' equity in the corporate balance sheet.
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