Why do the distribution from an S Corporation have to be pro rata? You have just identified one of the rigid requirements of an S Corporation, in that all distributions have to be pro rata! It is this inflexibility that has resulted in the popularity of LLC's.
No doubt, the S Corporations also has several other advantages over the LLC's, (please refer to my other posts in this Forum) but this rigid requirements have swayed many incorporation decisions in favor of the LLC's.
One of the disadvantages clearly that you have identified has the implication of allocating all distributions along with all profits, credits and section 179 depreciation amounts proportionately to all the shareholders ownership percentages, . |