State law gives a limited liability company the power to own property in its own name. This includes real property, such as land and buildings, personal property, which is any item besides real property that a person owns, or intangible property such as copyrights, trademarks or patents. An LLC is an independent legal entity, formed under state law, that combines attributes of a corporation and a partnership. Owners of an LLC, called members, have a lot of freedom in deciding what to transfer into an LLC.
Members can transfer money from their own accounts into the LLC's accounts. This is usually done in order to capitalize their interest in the company. The money can also be transferred as a loan to the LLC.
Members have the option of transferring their title to real property into the name of an LLC. Real property includes land, the structures fixed to the land and anything growing on the land. However, the actual ability to transfer real property can be constrained. For example, if a member wants to transfer his house to an LLC and the house still has a mortgage on it, the creditor must approve the transfer.
Members can transfer their personal property to an LLC. This includes vehicles, equipment, stocks or other property that the member owns. There should be a legitimate reason for transferring these items. For example, stock might be transferred as a way to capitalize the LLC. Or a vehicle might be transferred if it is used as the company car.
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Members can sometimes transfer debt into the name of the LLC, but only under limited circumstances. Such transfers require the approval of the creditor, and this approval can be difficult to obtain. If a member does not pay his personal debt, a creditor can go after his assets as payment. But if the debt is transferred to an LLC, the creditor can no longer get to the member's assets if the debt is not paid. The only time this transfer is typically allowed is if the creditor adds the LLC to the debt agreement as a co-signer. More rarely, the debt might be refinanced under the name of the LLC alone. When an LLC takes on a member's debt, it is typically viewed as a "loan" to the member that is repaid by letting the LLC keep the member's profits for a period of time.
A member should always have a legitimate reason for transferring property into an LLC. Although it may be tempting to do so, a member should not transfer property into an LLC simply to avoid the property being seized in a personal bankruptcy. In addition, the transfer should not be done just for better tax treatment. Each item that is put under an LLC's name should have a legitimate purpose.
With features published by media such as Business Week and Fox News, Stephanie Dube Dwilson is an accomplished writer with a law degree and a master's in science and technology journalism. She has written for law firms, public relations and marketing agencies, science and technology websites, and business magazines.