Distributions generally: Overview, definition, and example
What are distributions generally?
Distributions generally refer to the process by which a company or organization allocates or distributes assets, profits, or dividends to its shareholders, partners, or members. These distributions can be in the form of cash, stock, property, or other assets, and they are typically made from the company's profits or retained earnings. The specific process and rules around distributions are usually outlined in the company’s governing documents, such as its articles of incorporation or partnership agreements.
For example, a corporation might distribute a portion of its profits to shareholders in the form of dividends, or a partnership might distribute income to its partners according to the terms of their partnership agreement.
Why are distributions generally important?
Distributions are important because they represent how a company or organization shares its profits or assets with those who have an interest in its success. For investors, distributions (such as dividends) are a way to receive a return on their investment. For businesses, distributions are an important tool for maintaining relationships with shareholders, partners, or other stakeholders, and can impact the overall financial health of the company.
Distributions also help businesses comply with legal requirements and ensure that profits are allocated fairly according to the ownership structure. For investors or stakeholders, distributions provide a tangible benefit from their investment or involvement in the business.
Understanding distributions generally through an example
Imagine a corporation that has had a successful year and has earned significant profits. The company’s board of directors decides to distribute a portion of the profits to shareholders in the form of a dividend. Shareholders receive the dividend payments based on the number of shares they own. For example, if a shareholder owns 1,000 shares, and the dividend is $2 per share, they will receive a distribution of $2,000.
In another example, a family-owned partnership that owns a retail business generates a profit and decides to distribute $50,000 among its three partners according to the percentage ownership outlined in their partnership agreement. If one partner owns 50% of the business, they would receive a $25,000 distribution.
An example of a distributions generally clause in a contract
Here’s how a distributions generally clause might appear in a shareholder or partnership agreement:
“The Company shall make distributions to its shareholders/partners as determined by the Board of Directors or Managing Partners, subject to the availability of profits and in compliance with applicable laws. Such distributions may be made in the form of cash, stock, or other property, and shall be allocated according to each shareholder’s/partner’s percentage of ownership.”
Conclusion
Distributions generally are the allocation of profits or assets to stakeholders, such as shareholders or partners, in a business. They represent a return on investment and are an important way for companies to reward their stakeholders for their financial support or involvement. Whether in the form of dividends, profit-sharing, or other assets, distributions are a fundamental aspect of business operations, impacting both the financial health of the business and the satisfaction of its investors or partners.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.