Dividends and distributions refer to the payment of cash to investors. Why are there two separate terms? Well, the term is tied back to the type of entity that makes the payment. Simply stated, regular corporations, i.e. C-Corporations as identified in the Internal Revenue Code use the term ‘Dividends’ and S-Corporations (Small Business Corporations) use the term ‘Distributions’. In addition to S-Corporations, other closely held business use the term ‘Distributions’ to identify amounts disbursed to the respective owners or beneficiaries. These forms of entities include Partnerships, Limited Liability Corporations, Trusts and Estates.
Although it appears relatively simple at first, it is slightly more involved than this and this article addresses the proper definition and context use when using these two similar terms. In addition, there are more differences between the two terms than just the source of the payment. For a full and detailed understanding of the terms, continue reading.