Profit Distributions

Rather than reinvesting earnings back into the company, business owners have the option to collect their share of profits at the end of every period. This is known as a profit distribution, and each one an owner takes reduces their owners equity.

An LLC’s operating agreement should outline how profits will be split between owners. Profit distributions can be a monthly, quarterly or yearly occurrence, depending on what is specified in the operating agreement.

In an LLC with two equal owners, a $100,000 profit would be split 50–50, so both owners would receive $50,000. To record this distribution on the company’s books, the cash balance is reduced by $100,000 and both owner’s equity accounts are reduced by $50,000.

Since only balance sheet accounts are involved, profit distributions to owners do not affect net income.