What is a Pro-rata distribution?
A pro-rata distribution is the proportional allocation of profits and losses that S Corporations must follow based strictly on stock ownership percentages, with no flexibility for special allocations. A 60% shareholder receives exactly 60% of all profits and losses regardless of contribution level or effort. This single-class stock requirement contrasts sharply with Partnerships, which allow customized profit-sharing through partnership agreements, making S Corps less suitable for businesses that need disproportionate distributions.
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