I have an LLC currently taxed as a partnership, equal ownership percentages among three owners. But, the partners take distributions based on their relative percentage of respective revenue generation, which results in some partners receiving more than they should and others receiving less when compared to ownership percentages.
First, trying to get them to grasp that a business with multiple owners is ultimately based on the combined efforts (service and capital inflows) of the owners, and not only the relative revenue they each generate, is like pulling teeth. In other words, without all three owners being involved, the business would not be able to produce nearly the revenue and profits it is currently generating, and thus, none of the owners would realize the same overall cashflows from the partnership. They want to continue handling cash outflows to partners based on their percentages of revenue generation vs. ownership percentages. I realize this is fine for partnerships to have different distribution ratios, but it is resulting in one partner already having negative basis/ending capital balances, and in 2021, forecast is that Partner #3 would end up in that same boat.
I first thought guaranteed payments might help, but in thinking it through and doing calculations, I cannot find a balance.
I welcome any ideas on how to approach this such that negative basis can be restored ASAP and yet partners still feel like they are obtaining fair share of cash flows. But, like I said, they feel fair approach is ratio of revenue generation with no regard for actual ownership percentages on top of the fact they are in business TOGETHER. Capital contributions are a moot point, minimal to date and also equal.