Distribution
Money an S corp or LLC pays out to its owners from profit, separate from salary and not subject to payroll tax.
A distribution is a payment of business profit to an owner. In an S corp, it is the money taken out on top of salary, and it carries no Social Security or Medicare tax. That is where the S corp saving comes from, and why the IRS insists on a reasonable salary first.
Distributions aren't how S corp profit is taxed. Each shareholder pays tax on their share of profit shown on Schedule K-1, whether or not it is distributed. The distribution itself is generally tax-free up to the owner's stock basis. The Schedule K-1 shareholder instructions say distributions reduce basis, and any amount above basis is treated as capital gain. They also say you are responsible for tracking your basis, using Form 7203.
S corp distributions must follow share ownership. With one class of stock, required by the Form 2553 instructions, each owner's distribution is in proportion to their shares.
A C corp's distributions are usually dividends, taxed again to the shareholder. A sole proprietor's draws aren't taxed separately at all.