Distributive Shares

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This is the share of the profit and losses allocated to each member. It's sometimes called a "profits interest" in the LLC. The distributive share is usually specified in the operating agreement. Usually this is in the same ratios as the capital interest ratios between members.

The operating agreement can specify that the distributive shares are not in the same ratio as the capital interests and is called "special allocations". For example a member with 30% capital interest can have 40% of the yearly profits.

"A LLC that is taxed as a partnership is permitted to distribute cash ‘unevenly’ (an amount disproportionate to the member’s ownership interest). Remember that a member of a pass-through entity does not pay taxes based on money distributed to them, but on their proportionate share (known as pro-rata share) of the LLC’s profits or losses. An LLC is permitted to distribute losses differently among the members –e.g. a member with a 1% interest can take 90% of the tax losses in a particular year."
https://llc-made-easy.com/distributions-to-members.html

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  • over 1 year ago by vince