6 Del. C. § 18-405 explained: § 18-405 Contribution form for Delaware LLC founders (2026)

What 6 Del. C. § 18-405 says

Section 18-405 lets the Operating Agreement require contributions in specific forms (cash only, property of specific type, etc.).

Without specification, any form of contribution permitted by § 18-403 is acceptable.

Why this section matters

Allows multi-member structures to control the type of value members contribute.

What this means for non-resident Delaware LLC founders

Solo founders have full flexibility. Multi-member structures may want cash-only or specific-property contributions.

Common pitfalls

• Contribution-form restrictions limit operational flexibility.
• Service-only contributions can complicate tax filings.

How 6 Del. C. § 18-405 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. § 18-405'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. § 18-405 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 capital & contributions 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 18-405 actually do?

Section 18-405 of the Delaware Limited Liability Company Act sits in the capital and contributions part of the statute, alongside § 18-403 and § 18-404. Its job is narrow but useful. It confirms that the Operating Agreement may require members to make their contributions in a specific form. In plain language, the agreement among the owners can say that capital must come in as cash, or as a particular type of property, or in some other defined shape, rather than leaving the form open. The section is permissive, which means it grants the people drafting the agreement a power they can choose to use or ignore. It does not force any single member to contribute anything in particular by itself.

The companion rule lives in § 18-403, which sets out the broad menu of what a member is allowed to contribute in the first place. That menu is wide. It includes cash, property, services already performed, a promissory note, or a binding promise to contribute cash, property, or services in the future. Section 18-405 then layers a filter on top of that menu. If the Operating Agreement says nothing about the form of contribution, the default is that any form permitted under § 18-403 is acceptable. If the agreement does speak, the agreement controls. So the two sections work as a pair. One opens the door to many forms of value, and the other lets the owners narrow the doorway to the forms they actually want for their own company.

Why does this matter for a non-resident single-member LLC?

For a founder outside the United States who owns 100 % of a Delaware LLC, the practical message of § 18-405 is freedom. With only one member, there is no second owner whose contribution form needs policing, and there is no negotiation about who funds the company with what. A solo founder can put in cash by wire, contribute a laptop or intellectual property, or simply fund the account as needed. Because the default under § 18-405 accepts any form allowed by § 18-403, a single-member owner who never writes a form-of-contribution clause still has full flexibility. The statute does not penalize that silence. It quietly applies the open default.

That said, understanding the section still helps a non-resident owner in three ways. First, it clarifies that there is no Delaware rule forcing a minimum cash investment to form or keep the LLC alive. The annual obligations a non-resident actually faces are administrative, such as the $300 flat franchise tax due each June 1 and the $110 paid once to file the Certificate of Formation. Second, it shows that contributions are a matter of internal agreement, not a government filing. Third, it sets expectations for the future. If the founder later adds a partner, an investor, or a co-owner, the same section becomes the lever that lets the now multi-member company decide what kind of capital each person may bring. Knowing the tool exists before it is needed makes that transition smoother.

How does it interact with the Operating Agreement?

The Operating Agreement is the center of gravity for § 18-405. The Delaware Act is written to give maximum effect to the freedom of contract among members, and this section is a clear example. The statute itself does not dictate a form of contribution. Instead it hands the decision to the agreement. Whatever the Operating Agreement says about the form of capital becomes the operative rule for that company, and the statutory default only fills the gap when the agreement is silent. This is why drafting matters more than memorizing the statute. The section is essentially an instruction to look at the agreement first.

A few drafting choices commonly appear in agreements that use this power:

• A cash-only clause, which requires every member to fund the company strictly in money and avoids the valuation arguments that come with property or services.
• A specific-property clause, used when a member is expected to contribute a defined asset such as equipment, a domain name, or a license.
• A mixed clause, which permits cash from some members and property or services from others, often paired with agreed valuations.
• Silence, which is itself a choice, because it leaves the open § 18-403 default in place.

For a single-member company, even a short Operating Agreement is worth having, because it documents that the owner and the company are distinct and records how capital went in. That record supports the limited liability the founder is paying for in the first place.

What about the Certificate of Formation?

The Certificate of Formation is the public document filed with the Delaware Division of Corporations to bring the LLC into legal existence, and it costs $110 to file. It is deliberately thin. It does not need to list members, capital amounts, or the form of any contribution. Section 18-405 lives entirely in the private layer, the Operating Agreement, not in this public filing. That separation is intentional in Delaware. The state keeps the public record minimal and lets the owners keep the financial and governance details inside a contract that is not filed anywhere.

For a non-resident founder this division of labor is a quiet advantage. Sensitive matters, such as how much cash a member put in or what property changed hands, stay out of public view because § 18-405 routes them to the Operating Agreement. The Certificate of Formation simply establishes the entity and triggers the standard obligations that follow, including the $300 flat franchise tax due June 1 and, separately from Delaware, the federal filings a foreign-owned LLC must handle. None of those federal items, such as obtaining a free EIN through Form SS-4 or filing Form 5472 with a pro forma Form 1120, are governed by § 18-405. The section is purely about the form of capital agreed among members, and it leaves the formation document and the tax calendar untouched.

Practical scenarios where the form of contribution matters

Imagine two founders who decide to build a software company through a Delaware LLC. One has savings and the other has code already written. Without a form-of-contribution clause, the open default under § 18-403 would let the second founder contribute services or a promissory note, and the value of that contribution would have to be sorted out later. By using § 18-405, the founders can agree up front that contributions are cash only, which forces the coder to either buy in with money or accept a smaller stake. Alternatively, they can agree that the code counts as a property contribution at a stated value. Both outcomes are valid. The section lets the owners pick the one that fits their relationship and their tax planning.

Now compare a few situations a non-resident owner might meet:

• A solo founder funding a marketing budget by wire, where the open default applies and no clause is needed.
• A founder adding an overseas business partner who will contribute a customer list rather than cash, where a specific-property clause sets expectations.
• A founder bringing in an investor who insists on cash so the company's capital is clean and easy to audit, where a cash-only clause does the work.
• A founder who wants to contribute their own consulting time, where a services contribution is allowed but may raise the tax questions noted below.

In each case the statute is the same. What changes is the Operating Agreement language the founders choose to write under the authority § 18-405 provides.

Common misunderstandings about Section 18-405

A frequent misreading is that § 18-405 requires a contribution in a particular form. It does not. It is permissive. It empowers the Operating Agreement to set a form, but it never mandates one on its own. A second misunderstanding is that the section forces members to put in money at formation. There is no statutory minimum capital in the Delaware Act, and § 18-405 does not create one. A company can be formed and the contribution can be made later under a promise, if the agreement and § 18-403 allow it. Reading a funding requirement into this section is a common mistake.

Another confusion comes from mixing up the form of contribution with the sharing of profits and losses, which is the subject of § 18-404, not § 18-405. How much each member puts in and what form it takes is one question. How returns are split is a separate question handled by a different section and by the Operating Agreement. People also sometimes assume the form of contribution must appear in the Certificate of Formation. As explained above, it does not, because Delaware keeps that detail in the private agreement. Finally, some founders believe a service contribution is automatically forbidden. It is allowed under § 18-403, although a careful owner weighs the tax treatment before relying on it. Keeping these boundaries straight avoids drafting an agreement that solves the wrong problem.

What happens if Section 18-405 is ignored?

Ignoring § 18-405 is not the same as breaking a rule, because the section does not impose a duty that can be violated. If the Operating Agreement simply never addresses the form of contribution, the consequence is straightforward. The open default applies, and any form of contribution permitted by § 18-403 becomes acceptable. For a single-member company that outcome is usually fine. For a multi-member company it can be a source of friction, because members may later disagree about whether services or a promise should have counted as capital, and about how those contributions were valued.

The real risks of leaving the form of contribution undefined are practical rather than statutory. They tend to surface later:

• Disputes among members about whether a non-cash contribution was worth what one party claimed.
• Difficulty reconstructing capital accounts when the records were never written down.
• Tax complications, especially where service-only contributions blur the line between compensation and equity.
• Weaker documentation of the separation between owner and company, which is the foundation of limited liability.

None of these are penalties handed down by Delaware. They are the ordinary costs of leaving a question open that the statute invited the owners to answer. The section gives a tool, and the cost of skipping it is borne privately, not through state enforcement.

How does Section 18-405 compare to the default rule?

The cleanest way to see § 18-405 is as a switch between two states. In the default state, the Operating Agreement says nothing about the form of contribution, and the company accepts any form § 18-403 allows, including cash, property, services, a promissory note, or a binding promise of future contribution. In the customized state, the Operating Agreement uses the authority in § 18-405 to narrow that menu to whatever the members prefer. The statute treats both states as legitimate. It does not favor restriction over openness. It simply makes sure the company has a sensible rule either way.

This default-then-override pattern runs through much of the Delaware Act and reflects its policy of honoring the freedom of contract. For a non-resident founder, the comparison is reassuring. A founder who does nothing is not left in a legal vacuum, because the default quietly supplies a workable rule. A founder who wants control is not blocked, because the section hands over the pen. The decision about whether to specify a form of contribution should track the company's real situation. Solo owners can usually rely on the default and keep their paperwork light. Companies with more than one member, or with investors who care about clean capital, often benefit from writing an explicit clause so that everyone knows what counts as a contribution before any money or property moves.

Service contributions and the tax angle for foreign owners

Because § 18-403 permits a member to contribute services, and § 18-405 lets the Operating Agreement allow or disallow that, a non-resident owner sometimes wonders whether to contribute their own labor instead of cash. Under Delaware law this is permitted. The harder questions are tax questions, and they sit outside the Delaware Act entirely. Receiving an equity interest in exchange for services can be treated as income in many tax systems, and a foreign-owned single-member LLC already has federal reporting duties, including the Form 5472 paired with a pro forma Form 1120 that carries a $25,000 penalty for failure to file. A service contribution can complicate how those filings line up.

The cautious approach for many non-resident founders is to keep contributions simple, often cash, and to record them clearly, while reserving service or property contributions for situations where the value and the tax treatment are well understood. The Delaware side of this is genuinely flexible, since § 18-405 will honor whatever the agreement says. The constraint usually comes from the founder's own tax position. As a separate point, a US-formed LLC is exempt from beneficial ownership information reporting to FinCEN under the Interim Final Rule of March 26 2025, so that particular filing is not part of the contribution analysis. This is general information about how the statute operates and is not legal or tax advice for any specific founder.

A short checklist before you decide on a contribution clause

Before writing or skipping a form-of-contribution clause, a founder can work through a few plain questions. Each one maps back to how § 18-405 and its neighbor § 18-403 operate, and none of them requires a filing with Delaware. The goal is to match the agreement to the company that actually exists rather than to a template borrowed from a different kind of business.

• Is there more than one member? If not, the open default usually serves a solo owner well.
• Will any member contribute property or services rather than cash, and is its value agreed?
• Do future investors expect capital to be clean and easy to trace, which favors a cash-only clause?
• Are the contributions written down somewhere, so capital accounts can be reconstructed later?
• Have the tax effects of a non-cash or service contribution been checked against the owner's home-country rules?

Working through these points turns § 18-405 from an abstract statute into a concrete drafting decision. The section gives the owners the authority to choose, § 18-403 tells them what forms are available to choose among, and the Operating Agreement records the result. For a non-resident running a lean single-member company, the honest answer is often that the open default is enough and that a clear note of how the company was funded matters more than any clever clause. The flexibility is the point, and the statute is built to give founders exactly that.