This post is based on a Quora question in which a user who already had invested money in his corporation wanted to know how he can invest an additional amount. My answer, reproduced below almost verbatim, starts by summarizing the steps for an initial equity investment.
Let’s assume you did your startup paperwork properly: The board of directors approved issuing some or all of the corporation’s authorized shares to you in exchange of payment of certain consideration; you deposited that consideration into the corporation’s bank account; the secretary recorded your share ownership on the corporation’s share transfer ledger and issued a share certificate to you.
When you contribute additional funds to the corporation, you probably either:
- Will be issued more shares (though, in my experience, this is less likely because founders often issue all of their shares up-front) through a process like that described above, or
- Will make a loan of the additional amount to the corporation, in which case you should prepare an appropriate loan agreement and promissory note (if you expect to make additional contributions in the future, it probably makes sense to enter into a revolving loan agreement with a schedule of contributions and repayments that is updated from time to time).
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
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