How to Take Distributions From an LLP

By Elizabeth Rayne

In a limited liability partnership, or LLP, the owners are entitled to take distributions from the company. A distribution is any transfer of money or property to a partner and does not include repayment for loans or payment to a partner as an employee. Instead, it is the disbursement of profits of the partnership. Distributions are generally determined by the partnership agreement or a vote by the partners and must be formally recorded and reported to the Internal Revenue Service.

Partnership Agreement

Although not legally required, every partnership should have a partnership agreement in place. The agreement will specify when and how income from the partnership may be distributed. For example, distributions may be determined by how much each partner contributes to the startup fund, an even ratio among all partners, or the distribution may take into consideration the amount of time each partner devotes to the LLP. The agreement may also specify how assets will be distributed if the LLP dissolves. Drafting an agreement at the time the partnership is formed will avoid conflict among the partners as the business grows.

Types of Distributions

There are three scenarios where a partner may take a distribution from the LLP. A partner may withdraw money in anticipation of the current year's earnings, or he can withdraw money from the current or previous year's earnings, if the funds are not needed for day-to-day operations. The partners will vote on the timing of distributions and how the income should be divided, if these issues are not spelled out in the partnership agreement. A third form of distribution involves assets that are distributed to partners upon dissolution of the partnership.

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Record Keeping

All LLPs must maintain financial records. The records will show how much each partner contributed to the startup money for the business and how profits have been distributed. The LLP should maintain a financial record for the partnership as a whole as well as capital accounts for each partner showing individual contributions and distributions.


LLPs do not have to pay business income tax to the IRS; instead, partners must report income from distributions on their personal income tax returns. If distributions exceed the money a partner originally paid into the business, he may be liable for additional taxes on the capital gain. The business will generally file a partnership return with the IRS, listing distributions made to each partner during the year. Schedule K-1 must be distributed to each partner showing his share of the LLP's income, deductions and credits for his personal records.

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Partnership Profit-Sharing Agreements


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South Carolina LLP Laws

South Carolina law regulates how a Limited Liability Partnership, or LLP, may form, operate, and ultimately dissolve. Unlike limited partnerships or general partnerships where one or more partners are personally liable for the debts of the business, an LLP limits liability for all partners. Each partner may participate in the management of the business, and receive a portion of the profits.

Importance of Partnership Agreement

A legal partnership is formed automatically whenever two or more parties -- either individuals or organizations -- agree to do business together and share profits and losses. Partnerships are governed by state law, and these laws vary somewhat from state to state. You don't need to register your partnership with the state government for partnership law to apply.

Steps for Dissolving a Partnership in South Carolina

Knowing the process for ending a general partnership can help partners effectively wrap up business affairs when it comes time. In South Carolina, the filing of dissolution paperwork with the state is generally not required. However, it is a good idea for partners to execute a written agreement regarding distribution of company assets and payment of creditors in the event of dissolution. Additional steps, including cancellation of professional licenses and permits as well as satisfaction of tax liabilities, may also be involved.

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