What are the implications of lending money to my sole member S-corp?
You can make a capital contribution, not a loan. It's not a taxable event, no interest, and you can take a distribution later when the business has the money to pay you back. So yes, transfer the money. If you use software like Quickbooks, make use of unique accounts for tracking the contribution
"It should be pretty obvious that without knowing what sort of assets the company owns, and what sort of net earnings are being generated it's impossible to say what a $20k equity investment should get you in terms of ownership percentage.   With that said, you want to look at a few to several years of books, look for trends.  Some things to understand that might be subtle red flags: It's extremely common for early stage investors to essentially make loans rather than strictly buying shares.  In the worst case scenario creditors get to participate in liquidation proceedings before shareholders do.  You may be better off investing in this business via a loan that's convertible to equity at your discretion.   Single owner service companies are difficult because all of the net earnings go to the proprietor and that person maintains all of the relationships.  So taking something like 5 years of net earnings as the value of the company doesn't make much sense because you (or someone else) couldn't just step in and replace the owner.  Granted, you aren't contemplating taking over the business, but it negates using an X years of net earnings valuation method.  When you read about valuation there is a sort of overriding assumption that no single person could topple the operation which couldn't be farther from the truth in single employee service companies.  Additionally, understand that your investment in a single owner company hinges completely on one person's ability and willingness to work. It's really vital to understand the purpose of the funds.  Someone will be hired?  $20,000 couldn't be even six months of wages... Put things in to perspective with a pad, pen and calculator.  Don't invest in the pipe dream of a friend of yours, and DEFINITELY don't hand this person the downpayment for their new house.  The first rule of investing is ""don't lose money,"" this isn't emotional, this is a dollars and cents pragmatic process. Why does the business need this money?  How will you be paid back?   Personally, I think it would be more gratifying to put $20k in a blender and watch it blend, this is probably a horrible investment.  The risk should just be left to credit card companies." It was the sole creditor we're trying to avoid here is what I meant to say, not the broker him/herself.  The reason a firm might extend their debt would be to extend their credit into monetary value, in the scenario I just discussed, and it would more often be the more well known firms that would be the most likely to provide a Bond-Money Supply--Think IBM Bonds, Google Bonds, Cheese Board Collective Bonds, Tesla Motor Bonds, GE Bonds, etc.  All these firms would find a way to apply their bond funds in a way that would expand their output and henceforth make repaying the bonds much more likely, just like a normal firm would today.  The only difference is that in the mean time, that bond becomes a monetary commodity which people can trade for goods and services until it is repaid. Once repaid/neutralized, people can see that the bond is worth using and the demand for that bond as money will increase, just like how the demand for money will increase and that prompts a normal central bank to print more money.  Which means, the firm is safe to take on stable debt again which people can reuse again.  The major difference here is that we have a money supply that you can choose to participate in or not, and it is up to the consumers of that currency how the money supply flows, as opposed to a central authority.  It does matter who's first in line to get the new money in any economy, and with multiple policies competing, power is less concentrated:  http://www.youtube.com/watch?v=hx16a72j__8 *sigh* So I guess you don't understand why they would care about no risk....  If the sub company fails, but had no debt, then the parent company only loses whatever money they invested in the sub company  If the sub company fails and had debt:    The parent company is responsible for those debts and must pay them if in the agreement with the bank the parent company is responsible.    The parent company is not responsible for those debts if in the agreement with the banks, they did not agree to be collateral if the sub company went bankrupt. Not likely that a bank would agree to this though. They might even try to sue the parent company so they could get some reimbursement. Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian.  Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company...  If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined.  Loans terms shouldn't change.  Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods. Have you considered social lending (for example: Lending Club)? Alright, team!   I found answers to part 1) and part 2) that I've quote below, but still need help with 3).  The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on.  What part of the SE tax is that?  I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%.  (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make   employee deferral contributions of as much as $17,500 to a Solo 401(k)   plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up   contribution, bringing their annual deferral contribution to as much   as $23,000). Solo 401k contribution deadline rules dictate that plan   participant must formally elect to make an employee deferral   contribution by Dec. 31. However, the actual contribution can be made   up until the tax-filing deadline.  Pretax and/or after-tax (Roth)   funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to   a Solo 401(k) plan on behalf of the business owner and spouse.   Internal Revenue Code Section 401(a)(3) states that employer   contributions are limited to 25 percent of the business entity’s   income subject to self-employment tax. Schedule C sole-proprietors   must base their maximum contribution on earned income, an additional   calculation that lowers their maximum contribution to 20 percent of   earned income. IRS Publication 560 contains a step-by-step worksheet   for this calculation. In general, compensation can be defined as your   net earnings from self-employment activity.  This definition takes   into account the following eligible tax deductions: (1) the deduction   for half of self-employment tax and (2) the deduction for   contributions on your behalf to the Solo 401(k) plan.  A business   entity’s Solo 401(k) contributions for profit sharing component must   be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make   employee deferral contributions of as much as $17,500 to a Solo 401(k)   plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up   contribution, bringing their annual deferral contribution to as much   as $23,000). Solo 401k contribution deadline rules dictate that plan   participant must formally elect to make an employee deferral   contribution by Dec. 31. However, the actual contribution can be made   up until the tax-filing deadline.  Pretax and/or after-tax (Roth)   funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing   contributions to a Solo 401(k) plan on behalf of the business owner   and spouse. Internal Revenue Code Section 401(a)(3) states that   employer contributions are limited to 25 percent of the business   entity’s income subject to self-employment tax. Schedule C   sole-proprietors must base their maximum contribution on earned   income, an additional calculation that lowers their maximum   contribution to 20 percent of earned income. IRS Publication 560   contains a step-by-step worksheet for this calculation. In general,   compensation can be defined as your net earnings from self-employment   activity. This definition takes into account the following eligible   tax deductions: (i) the deduction for half of self-employment tax and   (ii) the deduction for contributions on your behalf to the Solo   401(k).  A single member LLC’s Solo 401(k) contributions for profit   sharing component must be made by its tax-filing deadline. "Cosigning is explicitly a promise that you will make the payments if the primary signer can not. Don't do it unless you are able to handle the cost and trust the other party will ""make you whole"" when they can... which means don't do it for anyone you would not lend your money to, since it comes out to about the same level of risk. Having agreed, you're sorta stuck with your ex-friend's problem. I recommend talking to a lawyer about the safest way get out of this. It isn't clear you can even sue the ex-friend at this point." In this example, Client A has to buy shares to return them to Client B for his sale (closing Client A's short position).  Client B then sells the shares.  The end result is there are no shares within the brokerage clientele anymore, so Client A can't borrow them anymore.    The broker is just an intermediary, they wouldn't go out and acquire securities on their own for the benefit of a client wanting to short it, as they would be taking on the risk of the opposite position.  This would be in addition to the risk they already take on when allowing people to short sell -- which is that Client A won't have the money to buy the shares it owes to Client B, in which case the broker has to make Client B whole. Sure, you'd make an $8.33 during that first month with little extra risk. Sounds like free money, right? (Assuming no hidden fees in the fine print.) I don't know that the extra money is worth the time you will spend monitoring the account, especially after inflation claims its share of your pie.  If you're going to use leverage to invest, you should probably pick an investment that will return at a much higher rate. If you can get an unsecured line of credit at 1%, there aren't a lot of downsides. Hopefully interest rates don't rise high enough to eat your earnings, but if they do, you can always liquidate your investments and pay the remainder of the loan. "If you have an S-Corp with several shareholders - you probably also have a tax adviser who suggested using S-Corp to begin with.  You're probably best off asking that adviser about this issue. If you decided to use S-Corp for multiple shareholders without a professional guiding you, you should probably start looking for such a professional, or you may get yourself into trouble. That said, and reminding you that: 1. Free advice on the Internet is worth exactly what you paid for it, and 2. I'm not a tax professional or tax adviser, you should talk to a EA/CPA licensed in your state, here's this: Generally S-Corps are disregarded entities for tax purposes and their income flows to their shareholders individual tax returns through K-1 forms distributed by the S-Corp yearly. The shareholders don't have to actually withdraw the profits, but if not withdrawing - they're added to their cost bases in the shares. I'm guessing your corp doesn't distribute the net income, but keeps it on the corporate account, only distributing enough to cover the shareholders' taxes on their respective income portion. In this case - the amount not distributed is added to their basis, the amount distributed has already been taxed through K-1. If the corporation distributes more than the shareholder's portion of net income, then there can be several different choices, depending on the circumstances: The extra distribution will be treated as salary to the shareholder and a deduction to the corporation (i.e.: increasing the net income for the rest of the shareholders). The extra distribution will be treated as return of investment, reducing that shareholder's basis in the shares, but not affecting the other shareholders. If the basis is 0 then it is treated as income to the shareholder and taxed at ordinary rates. The extra distribution will be treated as ""buy-back"" - reducing that shareholder's ownership stake in the company and reallocating the ""bought-back"" portion among the rest of the shareholders. In this case it is treated as a sale of stock, and the gain is calculated as with any other stock sale, including short-term vs. long-term taxation (there's also Sec. 1244 that can come in handy here). The extra distribution will be treated as dividend. This is very rare for S-Corp, but can happen if it was a C-Corp before. In that case it will be taxed as dividends. Note that options #2, #3 and #4 subject the shareholder to the NIIT, while option #1 subjects the shareholder to FICA/Self Employment tax (and subjects the company to payroll taxes). There might be other options. Your licensed tax adviser will go with you through all the facts and circumstances and will suggest the best way to proceed." If you just make a capital contribution to the company it is not a taxable event.  If you're the owner, lending only makes sense if you want the company to pay you interest (if you have partners who aren't lending money, for example) and you want to be compensated for lending, a loan would allow that. But the interest is taxable as income to you (1099-int) and the company can expense it. But a capital contribution is much easier and you can take a distribution later to get paid back. Neither event is taxed, but you cannot take interest. Legally, I can't find any reason that the LLC could not lend money to an individual. However, I believe the simplest course of action is to first distribute money from your company to your personal account, and then make it a personal loan. Whether the loan is done through the business or personally, financially I don't think there is much difference as to which bucket the interest income goes into, since your business and personal income will all get lumped together anyway with a single person LLC. Even if your friend defaults on the loan, either the business or you personally will have the same burden of proof to meet that the loan was not a gift to begin with, and if that burden is met, the deduction can be taken from either side. If a debt goes bad the debtor may be required to report the debt as income. I think you're misunderstanding how S-Corp works. Here are some pointers: I suggest you talk with a EA/CPA licensed in your state and get yourself educated on what you're getting yourself into. "I have personally invested $5,000 in a YieldStreet offering (a loan being used by a company looking to expand a ridesharing fleet), and would certainly recommend taking a closer look if they fit your investment goals and risk profile. (Here's a more detailed review I wrote on my website.) YieldStreet is among a growing crop of companies launched as a result of legislative and regulatory changes that began with the JOBS Act in 2012 (that's a summary from my website that I wrote after my own efforts to parse the new rules) but didn't fully go into effect until last year. Most of them are in Real Estate or Angel/Venture, so YieldStreet is clearly looking to carve out a niche by assembling a rather diverse collection of offerings (including Real Estate, but also other many other categories). Unlike angel/venture platforms (and more like the Real Estate platforms), YieldStreet only offers secured (asset-backed) investments, so in theory there's less risk of loss of principal (though in practice, these platforms haven't been through a serious stress test). So far I've stuck with relatively short-term investments on the debt crowdfunding platforms (including YieldStreet), and at least for the one I chose, it includes monthly payments of both principal and interest, so you're ""taking money off the table"" right away (though presumably then are faced with how to redeploy, which is another matter altogether!) My advice is to start small while you acclimate to the various platforms and investment options. I know I was overwhelmed when I first decided to try one out, and the way I got over that was to decide on the maximum I was willing to lose entirely, and then focus on finding the first opportunity that looked reasonable and would maximize what I could learn (in my case it was a $1,000 in a fix-and-flip loan deal via PeerStreet)." Lending of securities is done by institutional investors and mutual funds. The costs of dealing with thousands of individual investors, small share blocks and the various screw-ups and drama associated with each individual are too high. Like many exotic financial transactions, if you have to ask about it, you're probably not qualified to do it.