LLC Member Capital and Distribution Accounts

QUESTION:

I am setting up a new multi-member LLC and need to track member capital contributions (both cash and service) as well as member distributions. Does anyone have recommendations for setting up the proper accounts in the Chart of Accounts to track this information year to year?Thank you.

ANSWER

For an LLC with multiple members which has NOT elected to be taxed as an S-corp the LLC files taxes on a Partnership tax return (IRS Form 1065). You track the members equity the same as a Partnership.

You need to create new Equity accounts for each partner as follows:

• Partner A Contributions
• Partner A Draws
• Partner A Equity


• Partner B Contributions
• Partner B Draws
• Partner B Equity

Retained Earnings each year are zeroed out into each partner's Equity account in his proportionate share.

The Contributions and Draws for each year are also closed out to the Equity account for each partner and begin anew each year.

These closing entries are best done with a January 1 date so last year's reports remain correct if you are looking at them later on. The above partner's equity activity is shown on their individual forms K-1 that they receive from the partnership when the tax return is done. They show the partner's beginning equity balance, any contributions, draws and their share of the income and an ending equity balance. So your books should have the same information.