How to Track an LLC Capital Account

by John Cromwell, Demand Media

A Limited Liability Company capital account is a way to keep track of an individual member’s investment in the business. If the business was sold, or the member wanted to sell her share of the business back to the LLC, the capital account is a measure of what she receives in return. The account represents a combination of the member’s initial investment, additional contributions she made to the business, her share of the LLC’s profits and losses, and any cash or property distributions she received from the business.

Step 1

Establish the beginning balance of each capital account. When an LLC is created, the members contribute money or property so the business can begin operation. The initial balance of each capital account equals the market value of the property contributed to the LLC. If member A contributes $50,000 in cash, and member B contributes $50,000 in machinery, both have capital accounts equal to $50,000.

Step 2

Adjust the account for the member’s share of the annual gains or losses of the business. The LLC’s operating agreement will normally dictate how the profits or losses will be divided amongst the members each year. Assume members A and B agree to share equally in the business’s income and losses, and the LLC suffers a $50,000 loss in the first year but generates $100,000 in income the second year. Both A and B’s capital accounts would increase over that two year period by $25,000, or minus $25,000 for year one and plus $50,000 for year two.

Step 3

Subtract the amount of any distributions made by the LLC to the owner. If the business distributes cash to its members, the capital account needs to be decreased by the amount of the distribution. If members A and B receive a $15,000 distribution, their capital accounts decrease by $15,000 each.

Step 4

Add the value of any additional contributions the members made to the LLC after the initial investment. Using the same guidelines that established the initial balance, the capital accounts must be increased by the value of the property or cash the members contribute. So, if member A contributes $25,000 worth of raw material inventory and member B contributes $25,000 in cash, both accounts need to be increased by $25,000.


  • Consult with a licensed attorney to ensure a new LLC is properly organized. Consider hiring a certified public accountant to ensure the capital account is properly calculated. Maintain records documenting all contributions, distributions, and annual business activity in case of a lawsuit or audit.

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