Massachusetts LLCs are governed by the Limited Liability Company Act found in M.G.L. c. 156C. According to Section 29 of the Act,
the profits and losses of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in the operating agreement.
Additionally,
If an operating agreement does not so provide, profits and losses shall be allocated on the basis of the agreed value as stated in the records of the limited liability company of the contributions of each member to the extent they have been received by the limited liability company and have not been returned.
In other words, unless the operating agreement provides otherwise, profits and losses are allocated based on each member’s contributions to the LLC.
Section 27 defines “contributions”:
The contribution of a member to a limited liability company may be in cash, property or services rendered, or a promissory note or other obligation to contribute cash or property or to perform services.
If you’re thinking of forming a multi-member LLC, it’s important to be aware of these provisions and to have a mutually-agreed on operating agreement signed by all LLC members before forming your new company.
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