Capital Contribution

A capital contribution is an amount of money or property contributed by an investor or member of a company in exchange for an equity stake in the company. At the outset of a company’s life, the initial founders and investors in the company make initial capital contributions in exchange for the initial issuances of equity. Most initial capital contributions take the form of a payment of funds and are processed via check or wire transfer. Other common initial capital contributions include the assignment of intellectual property and the contribution of assets such as equipment. Other types of contributions are the reduction of an existing liability in exchange for equity and the assignment of intangible assets. Additional capital contributions may be made over the life of the company pursuant to an operating or capital control agreement or in response to a capital call. Capital contributions are tracked in the equity holder’s capital account. The IRS permits tax free capital contributions of non-cash assets as long as the value of the asset equals the value of the equity received in exchanged. If the value of the asset is less than the value of the equity received, the excess amount may be a taxable gain.