Certain contributions made for ownership interests may be taxable events.
If an owner contributes property to a limited liability company (LLC), and the business distributes the same property to another owner within seven years of the contribution, the contributing owner must recognize gain or loss on the distribution. This amount is the difference between the property's tax basis and its fair market value at the time of contribution. This rule does not apply to a corporation.
This really will only apply when a specific asset, other than cash, is contributed, and then that same asset is redistributed in this way. Here, again, this will not ordinarily be an issue of concern to the small business owner.
Again, if you are considering this option, be sure to consult with a tax attorney to make sure you comply with the complexities of these transfers and/or distributions.