Capital Contributions Under WI Restated LLC
Jeff Storch | 04.20.23
As we have discussed in several earlier articles, generally effective January 1, 2023, Wisconsin restated the Wisconsin Uniform Limited Liability Company Law, found in Chapter 183 of the Wisconsin Statutes (the “Act”). This article summarizes the Act’s provisions on capital contributions, an important issue for most limited liability companies (LLCs).
The Act addresses the form of capital contributions to the LLC, valuing the contributions, and obligations to make agreed-upon contributions. See Act Sections 183.0402 and 183.0403. A contribution may consist of money or property transferred to, services performed for, or another benefit provided to the LLC, or alternatively, an agreement to do any of the foregoing. Act Section 183.0402(1). The value of a member’s contribution shall be determined in the manner provided in the operating agreement but if the operating agreement does not so provide, the value shall be approved by consent of all members. Act Section 183.0402(2). That value must be properly reflected in the LLC’s records and is binding and conclusive on the LLC and its members.
Obligation to Make Contributions
If considering making or accepting a promise or other agreement to make a future contribution, members and the LLC should be aware that a person’s obligation to make a contribution is not excused by the person’s death, disability, termination, or other inability to perform personally. Act Section 183.0403(1). A member’s obligation to make a contribution to the LLC may be compromised only by the written consent of all the members, unless otherwise provided in a written operating agreement. 183.0403(3). But even if the members do consent, if a creditor of the LLC extended credit or otherwise acted in reliance on a member’s promise to make a future contribution, the creditor may enforce the obligation. Finally, if a person does not fulfill an obligation to make a contribution other than money, the LLC has the right to require the person to contribute money equal to the value of the part of the contribution that was not made. Act Section 183.0403(2).
Distributions Before Dissolution
The default rule of Act Section 183.0404(1) provides that LLC distributions before dissolution and winding up must be made proportionally among members and dissociated members on the basis of the value of the contributions made by each such member, as stated in the required records, except that, in the case of a company treated as a partnership for tax purposes, distributions instead are made on the basis of each member’s partnership capital account. Even though this default rule may be changed by the operating agreement (see Act Section 183.0105(1)), the value of members’ contributions remain important for tax purposes. Consequently, the LLC’s operating agreement should adequately address member contributions, whether adopting or changing the default rules of the Act.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.