Corporate Operating Agreements Ron Cardigan, son of Camille and Ray (Camille's first husband) has met with Camille and Candie to form a limited liability company designed to be a place where young future clothing designers can work as part of an internship before entering fashion design school

In this scenario, Ron Cardigan formed an LLC with Camille and Candie to offer mentorship to young clothing designers before entering design school. Ron contributed 40% of startup capital, Camille contributed 30%, and Candie contributed 30%. Ron felt that since it was his idea and he contributed more, he should get more of the profits. Camille and Candie felt that each member brought a unique talent to the business. Ultimately, the dispute was raised in court.

In general, most states distribute LLC profits based on the level of contribution that each member makes. Each member of the LLC has a capital account that tracks profit distributions. For example, if the total profits earned for the year are $10,000, then Ron would have $4,000 in his account. Likewise, Camille and Candie would each have $3,000 in their accounts. Each member can draw from the LLC up to their point of contribution. Drawing from the LLC is different than taking a distribution. However, the amount of any draws are also tracked in each member's capital account.

Distributions are generally made annually. When an LLC is terminated, all funds must be distributed. First, the funds must pay any outstanding debts. Any members that have missed a distribution are paid next. After paying for missed distributions, all contribution accounts must be fully settled. Finally, the remaining funds are distributed as profits to each member. If the LLC is poorly conceived or poorly funded, the court may order for the corporate veil to be lifted. This makes each individual member liable for corporate debts.