Opinion ID: 2511847
Heading Depth: 1
Heading Rank: 7

Heading: Does Wyoming law recognize a distinction between contributions to capital as initially listed in the articles of organization of a limited liability company, and as reflected on the company's books and records?

Text: [¶ 28] In large part, we have already answered this question in the affirmative, as did the district court, except that the phrase as initially listed in the articles of organization is inaccurate. It would be more accurate to say as initially listed in the articles of organization, or as the articles of organization have been amended from time to time. The statutory sections cited in the previous section of this discussion are not ambiguous in that they provide sure guidelines by which a limited liability company can operate, and they provide guidance as to the treatment of the economic and noneconomic interests of members. In those statutes, it is manifest that the books and records of the limited liability company may show capital contributions in a member's capital account or equity account that are not also included in his or her stated capital in the articles of organization. [¶ 29] The appellee's expert, a certified public accountant, testified at trial that he had done tax and accounting work for about 500 limited liability companies since the law's inception in Wyoming in the late 1970's. He further testified as follows: Q. What is your understanding? A. Well, there'sthere is a capital contribution for accounting and tax purposes and additions to capital. And then there's a capital contribution for purposes of the Wyoming Statute. . . . . Q. All right. Based on your experience in work for limited liability companies and having reviewed this Exhibit 32, do you have an opinion as to what the capital contributions are of the four persons shown on that Exhibit 32? A. Yes, I do. Q. And whatwhat is your opinion? A. Well, that the Powell Family of Yakima has permanent capital of $200; that Douglas Brickman has capital of $266.67; that James D. Hedstrom and Donna Hedstrom has [sic] permanent capital of $266.67; and that Galen Dunmire and Rebecca Dunmire have a permanent capital of $266.66. Q. All right. Are you aware of any amendment to these Articles of Organization? A. I am aware of no amendment filed with the Secretary of State. Q. All right. Now, we have talked at length about the various tax returns and the balance sheets for the Kite Ranch, LLC. Do you have an understanding of where the $300,000 that Powell Family of Yakima used to pay for a portion of the ranch, how was that characterized in the tax returns of the company? A. It is characterized as an addition to capital. Q. All right. And does it show up in the capital account of Powell Family of Yakima? A. It does. Q. All right. Now, Mr. Paiz, you and I have talked about the fact that there was there was $300,000 provided by Powell Family of Yakima, correct? A. Correct. Q. You and I have talked about how there was 100,000 that was given back, correct? A. Correct. Q. And do you agree with me that in the first year tax return, that $200,000 shows up in the capital account in Powell Family of Yakima? A. It does. Q. All right. During your work with limited liability companies, have you encountered a situation when someone put money into the company and it was posted to their capital account? A. Yes, I have. Q. Is that common? A. It is very, very common. Q. All right. Are you aware of a situation where someone has provided money to a company, that their money that they give, is posted to that member's capital account without that posting changing their capital contribution in the company? A. All the time. Q. All right. What types of things cause that to happen? A. Oh, company needing capital and certain loan covenants. For example, saying, here'shere's the percentage of loans you can make, and a company still needs capital. And so one of the partners may advance capital as such but not change ownership, because they don't agree to it and don't file the necessary amendments of the Articles of Organization as required by Statute to reflect those changes in ownership or profit sharing percentages. Q. Okay. So you have indicated that it is common for money to be posted to a partner's capital account? A. Correct. Q. All right. And you and I have discussed it at length, the propriety of that with regard to Powell Family of Yakima. Do you have an opinion as to the propriety of the posting of that $200,000 after the hundred came back? Do you have an opinion as to the propriety of the posting of that money to Powell Family of Yakima's capital account? A. Yeah. It's clearly an increase in the capital account, because the loan document said it was not going to be a debt. Q. Okay. So your opinion is, that was entirely appropriate? A. That was entirely appropriate. Q. Okay. Mr. Paiz, do you understand that Powell Family of Yakima is asserting that their contribution of that money to assist in the purchase of the Kite Ranch should result in their capital contribution as shown in Articles of Organization Exhibit 32 of increasing? A. Could you repeat that? Q. Yeah. That was not a good question. Are you aware that Powell Family of Yakima is arguing that the money that it gave to buy a portion of the ranch should be treated as a capital contribution? A. Yeah. I am aware that they would like it treated as a capital contribution, in effect, amending the Articles of Organization. . . . . Q. Mr. Paiz, in your course of providing work for limited liability companies, when someone wants to make a change to their capital contribution in the company, have you offered advice to them? A. Definitely. Q. And what is the advice you have offered? A. That we will have an amendment to the Articles of Organization, and all of the members will execute that and it will be filed with the Secretary of State of Wyoming. . . . . Q. Mr. Paiz, have you ever seen the argument being advanced by Mr. Powell applied in your work for all of those limited liability companies that you do work for? A. No. . . . . Q. Okay. I believe you touched on some of these items, but I want to make sure I understand. What types of things go into a member'sin determining a member's capital account balance? In other words, what attributions are made of in and out? A. Okay. You know, they are capital additions, the original capital contribution, the capital additions, the share of allocated net income, the withdrawals of cash, the returns of capital, and then market value adjustments. Q. Okay. In your opinion, is a member's capital account balance at any given point in time, is that the same thing as their capital contribution? A. No. Q. Why not? A. Because thethe capital accounts vary from time to time with these allocations of net income. And when you are accounting for it on the tax basis, you clearly know that this net income is not the economic net income of the entity. And so you know there are adjustments. The original capital account is the capital amount stated in the Articles and agreed to by all of the members in writing. [¶ 30] This testimony has been quoted at length to show that the members of this limited liability company treated the initial contributions to capital, and the additional contribution of $300,000 by Powell, exactly as we find to have been allowed by the unambiguous statutes. Sargent & Schwidetzky, Limited Liability Company Handbook § 1:3. At any given time there may be, and likely will be, a difference between the amount of a member's stated capital contribution, as reflected in the articles of organization, and the amount of his capital or equity account. In the instant case, Powell's $300,000 contribution is an example of just such a difference. There is no evidence anywhere in the record that any of the members, including Powell, ever intended for that $300,000 to represent stated capital in an ownership or management sense. It was additional capital that was to be repaid. The members could have made it otherwise, but they did not. [7]