LLC dividends vs. distributions

Legal experts parse LLC lingo

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

dividend_money_safe.ce.03.jpg

(FORTUNE Small Business) -- Dear FSB: Can an LLC declare a dividend?

- Mitchell Stein, Los Angeles, Calif.

Dear Mitchell: An LLC can declare what substantively is a dividend, but would be called a "distribution," according to Stephen Foxman, an attorney in the business division of Eckert Seamans in Philadelphia and chairman of the Philadelphia Bar Association's Business Law Section.

"The typical LLC is set up to be taxed as a partnership. With 'distributions' of cash or property, you wouldn't call them 'dividends,'" he says. "An LLC, if they elect to be, could also be taxed as a corporation, which could then distribute funds that would be the equivalent of a dividend, but would still be called 'distributions.'"

"Substantively, dividends and distributions are similar," says Esther Barron, assistant director of the Small Business Opportunity Center at the Northwestern University School of Law, "but in general, when an LLC makes a payment to its owners in cash or property it's called a 'distribution.'"

There can be other, very specific, distinctions based on the organization's particular operating agreement, she says. Other, complex distinctions can stem from a state's laws as well, says Foxman.

"LLC's are creatures of specific state laws, with powers depending on the state," he says.  To top of page

To write a note to the editor about this article, click here.

Find Business Answers
or
Ask a Question






QMy dream is to launch my own business someday. Now that it's time to choose a major, I'm debating if I should major in entrepreneurial studies or major in engineering to acquire a set of skills first. Is majoring in entrepreneurship a good choice? More
Get Answer
- Spate, Orange, Calif.
Sponsors
Five things to know about Putin's Russia An economic crisis, Western sanctions and a comeback currency: What's going on in Russia? More
9 up-and-coming collectible cars They're relatively cheap now but these models have already caught collectors' eyes and are expected to increase in value in years to come More
How I got into an Ivy League school These twelve high school students share what it took to get accepted into Ivy League schools. More