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Distribution
A distribution is a payment of profit from a company to its owners. In a pass-through entity a distribution is generally not itself a taxable event, because owners are taxed on allocated profit; in a C-Corporation a distribution is a dividend and is taxable to the shareholder.
In plain terms: Profit paid out to owners. Taxed differently depending on the entity type.
Why it matters
The distinction from salary matters for S-Corporations, where only the salary portion attracts employment tax. Distributions also cannot exceed a member's basis without tax consequences, which is a limit founders rarely track.
Read the full guideUS business taxes