LLCs offer owners—generally known as members—the liability protection of a corporation and the tax structure of a partnership.
Despite the tax advantages, investors who receive liquidation dividends often find that they do not cover their initial investment.
When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.
For the most part, such a distribution is made from the company's capital base, and as a return of capital, is typically not taxable for shareholders.
This distinguishes a liquidating dividend from regular dividends, which are issued from the company's operating profits or retained earnings. A liquidating dividend may be made in one or more installments. S., a corporation paying out liquidating dividends will issue to its shareholders a Form 1099-DIV showing the amount of the distribution.
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