6 Del. C. § 18-107 explained: § 18-107 Member transactions for Delaware LLC founders (2026)

What 6 Del. C. § 18-107 says

Section 18-107 confirms that members and managers can transact business with their own LLC (loans, leases, services). Such transactions are subject to fiduciary duties that the Operating Agreement may modify.

Why this section matters

Allows founders to lease assets to their LLC, lend money to it, or provide services for compensation, with proper disclosure and Operating Agreement provisions.

What this means for non-resident Delaware LLC founders

Non-resident single-member LLC owners often make capital contributions or loans to their LLC. Section 18-107 confirms this is permitted.

Common pitfalls

• Self-dealing transactions can be challenged if not properly documented.
• Tax implications: loans vs capital contributions vs equity have different treatment.

How 6 Del. C. § 18-107 interacts with the Operating Agreement

The Delaware LLC Act is largely a set of default rules that apply when the Operating Agreement is silent. Section 18-1101 directs courts to give "maximum effect to the principle of freedom of contract," meaning members can contract around most defaults via their Operating Agreement. The implied covenant of good faith and fair dealing always applies and cannot be eliminated by contract.

Practical implication: 6 Del. C. § 18-107's default rule applies only if your Operating Agreement does not address the same topic. A well-drafted Operating Agreement supersedes most Delaware Act default rules. For solo single-member LLCs, this matters less; for multi-member LLCs and complex structures, it matters significantly.

Primary source

The text of 6 Del. C. § 18-107 can be read at the official Delaware Code website: delcode.delaware.gov/title6/c018/. The Delaware Division of Corporations publishes guidance and forms at corp.delaware.gov.

Related Delaware LLC Act sections

Related sections in the member rights category and adjacent topics include the formation sections (§ 18-201 to § 18-213), member rights (§ 18-301 to § 18-306), management (§ 18-401 to § 18-402), distributions (§ 18-501 to § 18-507), and dissolution (§ 18-801 to § 18-803). For a full mapping, see the Delaware LLC Act glossary entry.

See all Delaware LLC statutes →

What does Section 18-107 actually permit?

Section 18-107 of the Delaware Limited Liability Company Act confirms a point that surprises some first-time founders: a member or a manager is allowed to transact business with the very limited liability company in which they hold an interest. In plain language, the same person who owns the company can also lend money to it, lease equipment or property to it, buy something from it, or provide paid services to it. The statute treats that person, for the purpose of the transaction, much like an outside party who has the same rights and obligations a stranger would have. This matters because under older or stricter bodies of law, a contract between a person and an entity they control could be viewed with suspicion or even treated as automatically void. Delaware took the opposite stance and built permission directly into the LLC Act.

The permission is broad, but it is not a free pass. The transaction still sits inside the framework of fiduciary duties and good-faith dealing that run through the rest of the Act, and it still has to be real and documented like any arms-length deal. Common transactions this section supports include the following:

• A member loaning cash to the company to cover startup costs.
• A founder leasing a laptop, vehicle, or office space to the LLC.
• An owner selling inventory or intellectual property to the company.
• A manager being paid for consulting or operational services.
• A member guaranteeing a debt the company owes to a third party.

Why does this matter to a non-resident single-member owner?

For a non-resident who owns 100% of a Delaware LLC, Section 18-107 removes a question that otherwise causes hesitation. Many founders abroad fund their company not with a single formal share purchase but with a series of personal transfers: money wired in to pay the $110 Certificate of Formation filing, the $300 flat franchise tax due June 1, vendor invoices, or working capital. Those transfers have to be characterized somehow, and the cleanest characterizations are either a capital contribution or a loan from the owner to the company. Section 18-107 confirms that the loan path is fully permitted. The owner does not lose the protection of the entity simply because they are on both sides of the arrangement.

This is especially relevant when the company is a single-member LLC with no other humans involved. There is no co-owner to negotiate against, so the deal is, in a literal sense, the owner dealing with themselves. The statute makes clear that this structure is allowed and does not automatically collapse the separation between the person and the company. That separation is the whole point of forming an LLC in the first place, and a poorly handled owner transaction is one of the ways founders accidentally weaken it. Treating the loan or lease as a genuine, recorded transaction, with terms a third party might accept, keeps the company and the owner as distinct economic actors and supports the limited liability the owner formed the entity to obtain.

How does it interact with the Operating Agreement?

The Delaware LLC Act is built around the idea that the Operating Agreement is the controlling document, and Section 18-107 follows that pattern. The statute permits owner transactions and subjects them to fiduciary duties, but those duties can be shaped, narrowed, or expanded by what the members write into the agreement. A single-member owner can use the Operating Agreement to pre-authorize the categories of transactions they expect to enter, to set out how related-party deals get approved, and to define what disclosure or fairness standard applies. Where the agreement is silent, the default fiduciary expectations supplied by Delaware law fill the gap.

Practically, a well-drafted Operating Agreement for a founder who plans to lend money to the company will say so plainly and describe how the loan is recorded. Useful provisions include the following:

• A clause confirming the member may contract with the company.
• A statement of how related-party deals are approved and documented.
• Any modification of the default fiduciary duty standard.
• A requirement to keep written records of the terms.

Because the statute lets the agreement modify the duties that apply, founders should treat the Operating Agreement as the place where the ground rules live, rather than relying on memory or informal habit.

How does it interact with the Certificate of Formation?

The Certificate of Formation is the short public document filed with the Delaware Division of Corporations to bring the LLC into existence, and it does very little of the heavy lifting that Section 18-107 concerns. The certificate establishes that the company exists, names its registered agent, and sets its legal address in the state. It generally does not list who the members are, what they have contributed, or which transactions they may enter with the company. That information lives in the private Operating Agreement and in the company's internal records, not in the $110 certificate on file with the state.

This division of labor is worth understanding because some founders assume that a loan or lease between themselves and the company has to be reflected in a state filing to be valid. Under Delaware's structure, that is not how Section 18-107 works. The authority to transact comes from the statute and from the Operating Agreement, while the Certificate of Formation simply confirms the entity is real and properly registered. A member who lends the company money does not amend the certificate to do so. They document the loan internally, reflect it on the company's books, and rely on the Act and the Operating Agreement for the legal footing. Keeping these two layers separate, the public formation document and the private governance and transaction records, helps a founder explain the company's structure clearly to a bank, an accountant, or a future investor.

A practical scenario: the founder loan

Consider a founder living outside the United States who forms a Delaware LLC and needs to move $8,000 into the business to cover early expenses. They could treat the money as additional capital, or they could treat it as a loan they expect to be repaid. Section 18-107 confirms that the loan is a legitimate transaction between the member and the company. To make it hold up as a loan rather than a disguised contribution, the founder writes a short promissory note stating the amount, an interest rate, and a repayment schedule, then records the obligation on the company's books. When the company later repays the founder, those payments reduce a recorded liability rather than looking like an unexplained withdrawal.

The distinction is not merely cosmetic. The plain text of the record for this section flags that loans, capital contributions, and equity each carry different treatment, and the characterization a founder chooses ripples into the company's tax reporting. A foreign-owned single-member LLC generally has to file Form 5472 together with a pro forma Form 1120, and the instructions to that form require reporting reportable transactions between the company and its foreign owner. A founder loan and its repayment are exactly the kind of related-party transaction that reporting is designed to capture. Because the penalty for a missed or incomplete Form 5472 starts at $25,000, a clearly documented Section 18-107 transaction is not just good governance, it is part of staying compliant with a filing the founder already owes.

A practical scenario: leasing an asset to your own company

A second common situation involves a founder who already owns equipment, software, or a vehicle and wants the company to use it. Rather than transferring ownership of the asset into the LLC, the founder can lease it to the company for a periodic fee. Section 18-107 supports this because it treats the member as someone who can contract with the company on terms comparable to those an outside lessor would accept. The lease keeps the asset in the founder's personal name while giving the company a legitimate, recorded right to use it, and it creates a deductible business expense the company pays to the owner.

The risk in this scenario is setting a rent figure that has no relationship to market reality. If the founder charges the company a wildly inflated rate, or charges nothing at all and then claims the asset belongs to the business, the arrangement starts to look like self-dealing rather than a genuine lease. The record for this section specifically warns that self-dealing transactions can be challenged when they are not properly documented. A founder who wants the lease to stand should put it in writing, set a defensible rate, keep proof of payments, and make sure the Operating Agreement permits the arrangement. Done that way, the lease is a normal, allowed Section 18-107 transaction. Done casually, it becomes one of the soft spots a creditor or tax authority probes when they want to argue the company and the owner are not truly separate.

What are the most common misunderstandings?

The first misunderstanding is the belief that owning the company means a founder can move money in and out freely without characterizing the transfers. Section 18-107 permits owner transactions, but it does not erase the need to record them. Treating the company's bank account as a personal wallet is one of the clearest ways to undermine the very separation that makes the LLC worth forming. The second misunderstanding is assuming that because the statute allows self-dealing, fiduciary duties no longer apply. The permission and the duties coexist, and the duties only change to the extent the Operating Agreement modifies them.

A few other recurring mix-ups are worth naming directly:

• Believing a loan and a capital contribution are interchangeable. They are not, and they carry different tax and repayment consequences.
• Thinking owner transactions must appear in the Certificate of Formation. They live in private records, not the public filing.
• Assuming a verbal handshake with yourself is enough. Documentation is what makes the transaction defensible later.
• Confusing Section 18-107 with permission to skip tax reporting on related-party transactions, which a foreign owner still owes.

What happens if owner transactions are ignored or handled badly?

Ignoring the discipline that Section 18-107 assumes does not usually trigger an instant penalty written into the statute, because the section is a permission rather than a prohibition. The consequences arrive indirectly and tend to land at the worst possible moments. If a creditor sues the company and finds that the owner and the entity have been treated as one wallet, with undocumented transfers flowing back and forth, that creditor may argue the limited liability shield should be set aside. The record for this section warns that poorly documented self-dealing can be challenged, and a challenge is far easier to mount when there is no paper trail showing the deals were real.

The tax side carries the more concrete exposure. A foreign-owned single-member LLC that fails to report related-party transactions on Form 5472 faces a penalty that begins at $25,000, and undocumented owner loans or leases are precisely the transactions that reporting expects to see. So while Section 18-107 itself does not impose a fine, the surrounding compliance regime does, and a sloppy owner transaction can feed straight into a reporting failure. The practical takeaway is that the cost of ignoring good documentation is not zero. It is simply deferred, and it shows up as a weakened liability position, a contested transaction, or a reporting gap that an outside authority notices before the founder does.

How does this compare to the default rule?

The Delaware LLC Act runs on a default-and-override design. For many topics, the statute supplies a default rule that applies unless the Operating Agreement says otherwise. Section 18-107 fits this pattern in a specific way: the default position is that members and managers may transact with the company, and that those transactions are measured against fiduciary duties. The override available to the members is the ability to reshape those duties in the Operating Agreement. So the section does not set a single fixed standard that founders are stuck with. It sets a starting point and then points to the agreement as the place where the members can adjust it.

This is different from imagining a world with no such section at all. In the absence of an express permission, a founder might worry that any contract with their own company is suspect or unenforceable, which would chill exactly the kind of ordinary funding and asset arrangements small companies depend on. Section 18-107 replaces that uncertainty with a clear default that says these transactions are allowed. For a non-resident single-member owner, the comparison is reassuring: the law starts from permission, applies fiduciary expectations as a backstop, and leaves room for the Operating Agreement to tailor the details. The founder's job is to use that room deliberately rather than letting the defaults apply by accident.

Putting Section 18-107 to work without overcomplicating it

For most non-resident founders, applying this section well comes down to a few habits rather than elaborate legal machinery. Decide whether money going into the company is a loan or a contribution, and be consistent. Write down the terms of any meaningful transaction between the owner and the company, even when the owner is the only human involved. Make sure the Operating Agreement actually reflects the kinds of related-party deals the founder expects to enter, since the statute lets that agreement govern the details. And keep the company's records clean enough that an accountant preparing Form 5472 and the pro forma Form 1120 can see each owner transaction clearly.

None of this requires turning a one-person company into a bureaucracy. A short promissory note, a simple lease, an Operating Agreement clause, and a tidy ledger are usually enough to satisfy what Section 18-107 contemplates. The point is to treat the permission the statute grants as something to be exercised carefully rather than assumed away. A founder who does that gets the practical benefit the section was designed to provide, the freedom to fund and supply their own company, while preserving the separation and the liability protection that drew them to a Delaware LLC in the first place. This page offers general legal information about Section 18-107 and is not legal or tax advice for any specific situation.