Default LLC Profit Allocation Follows Ownership Interest
The allocation of the LLC profit is governed by the rules of the state in which the LLC was formed and it usually means a profit share according to the percentage of ownership interest of each LLC member.
For example, if John, Gladys and Derek are all members of a three-member LLC with the following percentage of membership interest: John – 35%, Gladys – 35% and Derek – 30%. Under the state rules and according to their membership interest percentage, John and Gladys will each receive 35% of the LLC profits and Derek will receive 30% of the LLC profits. Pending no distributions are made, each member will receive in his capital account the amount of money representing the allocated profit.
Taking into consideration that state rules are the default rules, if the members of the LLC consider necessary, another profit allocation arrangement can be set that has no connection with the ownership interest.