What Constitutes Sufficient Capital?

What Constitutes Sufficient Capital?

A business entity, like a corporation, limited partnership, or a limited liability company should be sufficiently capitalized when formed. What constitutes “sufficient capitalization”?

There is not an exact amount required for courts to consider a business sufficiently capitalized. It’s difficult to have a set amount because of diverse requirements and expenses among different types of businesses. For instance, a commercial real estate investment firm would need more capital than an individual running a home-based word processing company.While it can be challenging to come up with a specific amount to fund your business, common sense should prevail. A company should possess the funds necessary to at least cover its operating expenses for the foreseeable future.

One of the issues that small business owners have with sufficient capitalization is that they usually don’t start out with much money. We’ve all heard inspiring stories about companies that started out with very little money and then achieved great success. But when forming a business entity, it must be sufficiently capitalized from the starting point.If you refuse to prove sufficient capital for your business, you risk a foot in the door of attorney’s litigators who seek to invalidate your corporation. Once the corporate veil is pierced, plaintiffs gain access to your personal assets. You can avoid this problem by adequately funding your business from the beginning.

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