Series 22: 1.1.4.2.2. Capital Allocations

1.1.4.2.2.  Capital Allocations

A member’s capital contributions can be made with cash, property, services, or the promise to pay in the future. Capital interest, the proportion of ownership in the LLC, is generally assigned in proportion to the amount of capital invested. If one has invested 50% of the total capital contributed to the company, the investor will generally receive a 50% capital interest in the company, or a 50% share of the membership units.

Profits and losses may also be distributed in disproportionate allocations. Disproportionate allocations, also called special allocations, may be made for any number of reasons. A more active member may receive a greater share of the distribution than his capital interest would otherwise warrant. Special allocations may be offered to attract new investors. Passive members may receive a greater allocation by giving up their voting rights to the other members. The IRS permits disproportionate all