Legal Question in Business Law in California

Re: Members taking all profits

Mr. Walton is right. I would like to add that the management and dividend-paying policies of an LLC are determined by private contract, and the starting point for a lawyer trying to assist you would be to obtain and review the organizational documents including the LLC-1 it filed to get started, everything else it has ever filed with the Secretary of State, its Operating Agreement, and probably its books and tax returns.

Whether retaining earnings in the business rather than paying out enough to cover members' tax obligations is a permissible policy or not may depend upon what the Operating Agreement executed by the members at the time of the LLC's formation says, or fails to say, about making distributions.

By the way, the terms "corporate" and "dividend" are probably not accurate; you probably mean "managing members" and "distribution" is probably a better term than "dividend" although not necessarily wrong.

Re: Members taking all profits

The salaries are expenses of the company, so they are deducted from the profits for purposes of determining adjusted gross income. You should only be paying taxes on the net profit.