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    3 Replies Latest reply on Jul 10, 2009 12:40 PM by bm911tax

    Dividing revenue between owners and not-owners of LLC

    newCompany Newbie
      we are going to open an LLC. We are 4 people, but we were wondering if it's possible to have only two owners of the LLC but still being able to equally divide up the profit between the 4 of us. Is this something that can get covered in the operating agreement? or where?
      My understanding is that by default the profits are divided by the owners only, unless a salary structure is put in place. So, let's assume each quarter we have revenue of $10,000, would it be possible to make quarterly payments to EACH of the 4 of us of $2,500, even if there are only 2 owners of the company? or is it possible to divide the profits between 4 people even if 2 are not owners?

        • Re: Dividing revenue between owners and not-owners of LLC
          DomainDiva Ranger
          You can out into the LLC documents any revenue sharing you wish. However if you share all of the revenue you will probably not have any operating money.
          • Re: Dividing revenue between owners and not-owners of LLC
            Lighthouse24 Ranger
            If your LLC has only two members (owners), then what is the status of the other two people (i.e., are they employees, contractors, volunteers, or what)? Whatever it is, I'm not sure they'd be eligible for a distribution of the LLC's profits. Certainly you may create a kind of "profit sharing" arrangement that effectively gives them half and any distributions that are taken, but you might want to consult a tax accountant about the implications of how you implement that -- and you may also want to investigate the impact that those other two workers' status could have on your business (unemployment taxes, workers comp, labor law compliance, etc.).

            Best wishes.
            • Re: Dividing revenue between owners and not-owners of LLC
              bm911tax Adventurer

              LLC is only one part of business formation. What you should ask is what is the best way for the LLC to be taxed like. In your case your LLC can either be taxed like Partnership, C Corp or S Corp. All of these 3 tax classifications carry different rules on profit sharing and or distribution of income or dividends. I strongly suggest to talk to a qualified tax advisor/accountant so he/she can help you set this up properly. I have dealt with people trying to save some $$ by doing this themselves. At the end they usually pay the double amount: first to fix their mistakes and second to set it up correctly. Oh yes forgot, I hope you have a legal adviser that will put together or consult you on how to properly word operating agreement.


              Best of luck.