Owners' Capital Accounts Reveal Surprising Wealth-Sharing Arrangements in LLCs and Partnerships
Limited liability companies and partnerships have different balance sheet structures compared to corporations, with a focus on individual owner equity accounts called capital accounts. While LLC law does not mandate capital accounts, they are crucial for tax purposes in partnerships and most multi-member LLCs. Understanding capital accounts is essential for accounting practices, state default rules, and federal tax compliance. Analyzing capital accounts helps clarify how owners agree to share losses in these business structures.