From research I understand that an LLC does not need to issue distributions in proportion with ownership

e.g. A company can be 60-40 ownership but 80-20 profit distributions

I also think an S-Corp cannot, distribution must be inline with proportion ownership

e.g. A company can be 60-40 ownership must distribute profits 60-40

If a company is an LLC acting as an S-Corp which rule applies?

2 Answers 2


It's actually the other way around. Distributions in an LLC are usually based on each member's equity share, although the operating agreement can specify how often such distributions are made. Shareholders in a corporation can receive dividends, but those are determined by the corporation's board and can vary depending on the class of stock each shareholder owns. Preferred-class shareholders, who may hold a smaller overall fraction of the company's outstanding shares than the common stock shareholders, may receive disproportionately larger dividends per share than common stock shareholders, which is one of the (many) reasons that preferred stock is a better choice when it is available. Take, for instance, what Berkshire Class "A" shareholders receive in dividends per year compared to Class "B" shareholders.

Here's a good link from LegalZoom that can explain what you're asking about:

Explanation of LLC distributions

I hope this helps.

Good luck!


LLC is not a federal tax designation. It's a state-level organization. Your LLC can elect to be treated as a partnership, a disregarded entity (i.e., just report the taxes in your individual income tax), or as an S-Corp for federal tax purposes. If you have elected S-Corp, I expect that all the S-Corp rules will apply, as well as any state-level LLC rules that may apply.

Disclaimer: I'm not 100% familiar with S-corp rules, so I can't evaluate whether the statements you made about proportional payouts are correct.

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