Dividends and distributions refer to the payment of cash to investors. However, there are important differences between the two terms.
A dividend is a payment made by a corporation to its shareholders. It is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding.
When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of the profit as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.
Distribution of profit is a term used to describe a benefit received from closely held entities such as the S-Corporation, Partnerships, Limited Liability Company, and Trusts.
It refers to the dispensing of profits amongst partners of a partnership, members of a LLC, or employees in a company, as per terms outlined in a profit-sharing agreement.
