When are shareholders entitled to shareholder distributions?

What are the distributions to shareholders by a corporation?

Shareholder distributions are profit distributions that an S Corp pays to shareholders. Shareholder distribution is a property or cash payment from the corporation to the S Corp’s owners. S corp shareholder distributions are the earnings by S corporations that are paid out as dividends to shareholders. If a shareholder receives a non-dividend distribution from an S corporation, the distribution is tax-free to the extent that it does not exceed the shareholder’s stock basis. A corporate officer’s salary is not a shareholder distribution. A salary is a compensation for work performed. A shareholders distribution is a corporate income or property distributed to a shareholder.

What is the difference between a shareholder distribution and dividend?

Both dividends and distributions are corporate forms of returning income to its shareholders. A distribution is a payment from a mutual fund or S corporation, mostly cash. A dividend is a payment from a C corporation, usually cash or additional shares. C Corp’s shareholder dividends are paid with after-tax money at the corporate level; S corp’s shareholder distributions are paid to shareholders with before-tax money at the corporate level.

Dividends are paid by C corporations after net income is calculated and taxed. An S corporation is not subject to corporate tax. While an S corporation does distribute profits to its shareholders, they are not considered dividends because that term refers explicitly to profits paid out after taxes.