In most organizations, however, the capital accounts do determine the manner in which liquidating distributions are shared.Thus, at the time of distribution, the appropriate formula is:2.After C’s contribution, the capital accounts in the LLC are 0 for A, 0 for B, and 0 for C.
Liquidating Distributions = Capital Account Owner’s Share of Unrealized Profits - Owner’s Share of Unrealized Losses In other words, on liquidation of the organization, the final amount is divided among the owners in proportion to the owners’ respective capital accounts.
Thus, although capital accounts may be simply a matter of book entry while the organization is operating, at the conclusion of the organization they have economic consequences on liquidation.
Table of Contents New legislation and reforms in the tax rules have made unincorporated organizations such as partnerships and limited liability companies (LLCs) attractive forms in which to organize small businesses.
It is now possible for a business to be organized as an unincorporated entity in which none of the owners is individually liable for the obligations of the organization, while not being subject to the disadvantages of corporate taxation.
Because $800 has not yet been recognized (normally appreciation and depreciation are not recognized until there is a disposition of the property), no profits have been allocated, and A and B each continue to have a capital account of $100.