Partnership Income Division

Income division (also known as income allocation) is performed to allocate an LLC or partnership’s net income during a perod amongst the company’s owners.

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When two or more individuals own an LLC (or partnership), the owners must include in their Operating Agreement (or Partnership Agreement) how income and losses are to be distributed amongst the members (or partners). There are numerous ways that owners can decide to allocate the net income of a company (e.g. according to a ratio of original investments, according to time spent on the business, etc.). As a note, if the company does not have an agreement, then income and losses are distributed equally.

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Let’s see if you can apply what you’ve learned! Try the practice problem below.

Partnership Income Division #1

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It looks like you’ve mastered this lesson. Good work!