Money is put into a corporation either to fund future activities or, in the case of a small asset protection corporation, as a loan to the corporation. Loans are popular vehicles for moving money because they help individuals save money by lowering personal taxes.
There are primarily two classifications for funds that you place into your corporation’s bank account: capital contributions and loans. Larger corporations will have a third class, similar to a loan, called ‘corporate bonds’.
Loans for corporations can often be quite difficult to get unless a corporation can consistently show income sufficient to pay the loan back. New corporations are less likely to get bank loans because, like a college student just starting off, they will not have much or any kind of credit history. If you try to get a bank loan with a new corporation, chances are that you, as an individual, will have to co-sign for the corporation. This is the way many new corporations begin to build depth in their credit history.
By loaning money to a corporation, you are essentially giving the corporation funds. In exchange, the corporation is going to give you a promissory note. This promissory note tells you the length of the note and the rate of return (interest) on the note. If the corporation issues a promissory note for a loan, be sure to create a corporate resolution authorizing the loan.
A capital contribution means that you are placing money into a corporation as an investor of the corporation. When you place your money into a corporation as an investment, the corporation gives you shares of stock in the corporation. The number of shares of stock that you receive is based on the value of each share. A share of stock could be valued at any price; it could be worth one dollar or one million dollars.
There are specific considerations, with respect to the tax treatment of contributions from shareholders and non-shareholders, so be sure to consult with a tax professional.