What is a Distribution to Owners?

A distribution to owners is a payment of the retained earnings of a business to its owners. This distribution may be made in a smaller company because there is no other way for the owners to gain value from the enterprise, as would normally be achieved through the sale of stock or sale of the business. This distribution results in a reduction of the equity and assets of the business. The distribution is usually made in cash, though it can also be made using any other asset of the business.

A distribution to owners is more likely to be made after the growth phase of a business is over, and it is generating more cash than it requires for operational purposes.

Example of a Distribution to Owners

Catenary Corporation, which designs suspension bridges, has had an excellent year, generating $1 million of profits. Its board of directors decides that the firm does not need to reinvest all of these proceeds back into the business, and so votes to distribute $250,000 to the shareholders. The firm currently has 100,000 shares outstanding, so the owners decide to issue a dividend of $2.50 per share. This means that, for example, if an owner has 10,000 shares of the company, she will receive a $25,000 distribution in the form of a dividend.