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.
Want to buy -- and live in -- a piece of history? It's not that far out of reach. These historic homes are not only for sale, they are incredible bargains. More
5 ways retailers are tracking you If you think pesky salespeople are invading your personal space, check out these 5 technologies that are tracking your movements throughout a store. More
Moto X vs. Droid Turbo: Which Droid should you buy? Motorola has made the two best Android smartphones this year. Here's how they stack up. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.