Question

Omega LLC is a limited liability company. The operating agreement for Omega is silent on the sharing of profits and losses. Omega has four members. Hess contributed $10,000, Ivan contributed $20,000, Johns contributed $30,000 and Kale contributed $40,000. For the year ending December 31, Year 3, Omega had losses of $200,000. What amount of the losses should be allocated to Ivan

Answer 1

Since Ivan contributed $20,000, his share of the LLC is 20% (= $20,000 / $100,000).

Since the LLC lost $200,000 during the year, Ivan's 20% of the losses doubles the amount he contributed. Since he participated in a LLC, he is only liable for the amount he contributed, $20,000 and not the whole $40,000.

Step-by-step explanation:

Generally LLC choose to be taxed like partnerships, so they have to allocate profits and losses every single year for taxation purposes. Profits and losses are allocated in the same ratio as member contributions unless other way of allocation is specified.

Therefore, Ivan should be responsible for $40,000, but that is more than his total liability, therefore he is only responsible for $20,000 (his total contribution).