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Loaning my own money to a business/selling equity.

coglethorpecoglethorpe subscriber Posts: 1
edited June 2008 in Growth Funding

This is my first post here.  I`m thinking of starting a new corporation for a business and need to know the right way to go about it.  I plan on bootstrapping the business and funding it with my day job money as I go along.
I`ve read that I can loan money to the business, provided that I specify repayment terms.  How flexible can those terms be?  Are there sample forms to show what terms might be like? 
If equity is sold, are additional shares created?  Do all shares have to be assigned when the startup is created?
Is it possible to keep shares held by the coropration then assign them later if family or friends insvest?
What about the funds used to incorporate?  Can those come from a private source?
Any website that might describe the process would be great.
I think I get the idea of using a corporate account, tracking things in something like Quickbooks, etc. to keep things separate once the business is set up, but the first steps seem the most confusing.


  • robertjrobertj subscriber Posts: 0 Member
    It is important to avoid "co-mingling" your personal funds with the company`s funds - so when you provide money to the corporation - it should be documented as either a loan or an investment of capital.
    Generally the Articles of Incorporation (which creates the entity) state how many shares and of what type the corporation is authorized to issue. It is usual for the company to retain some shares in reserve as unissued. In most states, the process to change the number of authorized shared is pretty simple - you file an amendment to the Articles. Be aware, however, that some states charge a fee based upon the number of shares or the projected book value of the company.
    If you have specific questions, send me a PM
  • st8icst8ic subscriber Posts: 11 Bronze Level Member
    The way that my accountant advised me to do it is to make a shareholder loan to the company. The money is taxed as an income to the company but when the time comes to repay yourself, you don`t personally pay tax on the loan repayments. I`m not sure if the IRS would have anything different to say about it though, I`m canadian and the rules may be different.
    Best to talk to your accountant about it!
  • robertjrobertj subscriber Posts: 0 Member
    I`m not up to speed on Canadian tax laws but in the States, generally:
    1. Capital received by the corporation as a loan is not treated as income.
    2. The interest portion of loan repayments is usually income to the lender.
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