Series 22: 1.1.5.1. Ownership Allocation

1.1.5.1.  Ownership Allocation

An S corporation may not have a disproportionate allocation of ownership. Unlike a limited partnership or LLC, profits must be allocated in strict proportion to the shareholder or member’s percentage interest in the company. Shareholders or members who actively participate in the business already receive reasonable compensation. As to profits and losses, they may only receive their share in the business’s investments.

An owner’s share of the business’s investment is that owner’s capital account. The capital account measures the member