Profit allocations in Limited Liability Companies. Kiritsis Law Group 212 922 0005
One of the most confusing aspects in managing the day to day, as well as, the long term legal affairs of an LLC is that of profit allocations.
What are an LLC's profit allocations?Simply put, a profit allocation is how the LLC allocates (or refrains from allocating) to its ownership class. The ownership class of an LLC are often referred as the LLC's members. Commonly, how the LLC's profit allocation would be implemented, would be laid out in the LLC's key document which governs its internal governance affairs, which is known as an operating agreement.
Specific Issues & Concerns.ypically, with a properly drafted, negotiated and finalized Operating Agreement, the members (and perhaps by extension its managers) can elect to have the option to specify the following: a) when the periodic profit allocation will be distributed from the LLC to its members/owners. b) How, would such profit allocations may be changed at any time by a member vote (typically measured in a percentage basis). It is worth mentioning, that such amount may change depending on company's profits (among other factors, if any).