I want to distribute excess cash to members. In each of the last 7 years our LLC was profitable and has distributed 40% of net income to each owner by ownership % as
Calculating LLC Distributions
Answers
What does the Member Agreement state the determination date is for distributions?
Failing that approach (it's silent), when were the other distributions made (date wise) (get membership agreement first).
Thusly in the former it's very easy - cut and dry. The latter is more work, but you have a Balance Sheet figure in which to use for your calculations.
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It is silent, and this is our first ever distribution that is not pre-defined tax-coverage, so no board resolution dictating method as yet for this FCF distribution.
Why not calculate it on a quarterly basis, using % of ownership and net income at quarter end.
These are good options. But since the LLC operating Agreement is silent on this, consider getting members to agree on a plan of distribution. Best to avoid having a dissident member post-distribution.
Thanks All. My
Would it make more sense to calculate each member's undistributed Net Income allocation as a percentage of the total and then distribute the excess cash on the basis of that weighted average? For example, Bob has $900K undistributed NI of a total of $3M undistributed for all members, so 30% for him. Therefore his distribution amount would equal 30% of the $1M in FCF to distribute, or $300K.
Thanks for any input.
If you can find a way (easier said than done) to allocate/identify the undistributed retained earning/cash based on what year it was "earned" then you may have a simpler allocation based on that year's ownership mix/percentage. In essence, you are just going back in time and distributing what was supposed to be distributed during that year.
The distribution should be based on balance in each member's capital account as of the time of distribution. Update their respective internal partner (member) basis first.
On the other hand, how did you have stock sales and stock grants for Limited Liability Company (LLC)? LLC has only membership interest.
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