Legal Question in Business Law in Colorado

Transfer of assets

I am in the process of a small business start-up. I am using personal funds as a loan, not a contribution, to which I would like to eventually pay back from the business profits. To avoid this money be considered as capital contributions by the IRS and causing repayment to be taxed as a dividend, is there an on-line loan form I can complete and maybe have notarized that will suffice in this regard?

Thank-you so very much!

A small business owner who cannot pay my lawyer any more money......

--name removed--Ella

Asked on 7/25/01, 9:56 pm

1 Answer from Attorneys

Louise Aron Attorney at Law

Capital contributions, loans and documentation of corporate transactions

Louise Aron

Attorney at Law

Lakewood Office:

1536 South Ingalls

Lakewood, Colorado 80232 USA

(303) 922 7687

fax (303) 922-1370

Cherry Creek Office:

300 South Jackson #100

Denver, Colorado 80209 USA

(303) 780-7339

Satellite offices:

Boulder - 4450 Arapahoe Avenue, #100

DTC - 4610 South Ulster, #150

A TOLL FREE NUMBER is available to clients outside the Denver metro area.

My web site

My email: [email protected]

LawGuru User

Dear LawGuru User:

You are obviously well informed and cautious.

Repayment of a loan is not a shareholder dividend. Distinguishing loans from contributions is a function of truth and record keeping. If your funds are truly a loan and you document the loan using a promissory note and repayment schedule, then it is a loan.

If your funds are a capital contribution, shares should be issued to you in return. If no shares are issued, and the loan is not documented, the IRS and others may conclude that you do not have a corporation, that you are co-mingling personal and corporate assets, and that the "corporate veil" should be removed, making the shareholder(s) liable for corporate obligations.

Please visit my web site for further information. I deal with many startup businesses on tight budgets, but allow them to pay my fees over time without interest or finance charges.

Reliance on attorneys and C.P.A.s is essential for the survival and prosperity of corporations. Without compliance with all applicable laws, shareholders are vulnerable to personal liability.

Thank you for contacting LawGuru.


Louise Aron

Attorney at Law

My web site

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Answered on 8/07/01, 5:04 pm

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