What Does “Always Fund Distributions Before Net Pay?” Mean?

Always Fund Distributions Before Net Pay?

When you set up your initial business entity with the Secretary of State, you will be asked to designate a registered agent. The registered agent is the person or company that agrees to receive and manage important legal documents on behalf of the LLC. These documents can include service of process notices, tax forms, and other communications from state agencies.

The LLC’s registered agent must have a physical address in the state where the LLC is organized and be available during normal business hours to accept service of process and other legal documents. Many LLCs elect to designate a member of the LLC as its registered agent, but you may also designate a third-party company that specializes in handling these services for LLCs.

Once you have chosen your registered agent, you will need to provide their contact information to the Secretary of State when you file your formation documents. You will also need to provide the registered agent’s consent to serve in this capacity.

What Does “Always Fund Distributions Before Net Pay?” Mean?

The phrase “always fund distributions before net pay” is a best practice when it comes to managing your LLC’s finances. This means that when it comes time to distribute profits to members, you should first set aside enough money to cover any taxes that may be owed on those distributions.

For example, let’s say your LLC has $10,000 in profits for the year and you have two members who are each entitled to 50% of those profits. If you were to simply write each member a check for $5,000 without setting any money aside for taxes, you would be responsible for paying any taxes owed on those distributions out of your own pocket.

However, if you were to set aside $2,500 for taxes before making any distributions, you would only owe taxes on $7,500 of profit—leaving more money in your pocket (or the pockets of your members).

While “always funding distributions before net pay” is not required by law, it is generally considered a best practice because it can help save your LLC money in the long run.


“Always fund distributions before net pay” is good advice for LLCs because it can help save the company money by setting aside money for taxes before making distributions to members. This best practice can help keep more money in your pocket and avoid any penalties or interest charges that could be assessed if taxes are not paid on time.