Greetings all. I am curious if anyone can shed light on the reason for the following provision in an LLC operating agreement. The operating agreement employs target allocations, as well as the provision copied below to determine "items comprising allocations." In your experience, what is the reason to specify the "items comprising allocations"?
Thanks!
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(1) In the event that the Company has Profit for a Fiscal Year,
(a) for any Member as to whom the [target allocation] would reduce its Capital Account, such allocation shall be comprised of a proportionate share of each of the Company’s items of expense or loss entering into the computation of Profit for such Fiscal Year; and
(b) the [target allocation] in respect of each Member [other than a Member in (a)] shall be comprised of a proportionate share of each Company item of income, gain, expense and loss entering into the computation of Profit for such Fiscal Year [other than items allocated under (a)].
(2) In the event that the Company has a Loss for a Fiscal Year,
(a) for any Member as to whom the [target allocation] would increase its Capital Account, such allocation shall be comprised of a proportionate share of the Company’s items of income and gain entering into the computation of Loss for such Fiscal Year; and
(b) the [target allocation] in respect of each Member [other than a member in (a)] shall be comprised of a proportionate share of each Company item of income, gain, expense and loss entering into the computation of Loss for such Fiscal Year [other than items allocated under (a)]