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This paper studies microgrids where loads are supplied by parallel-connected inverters controlled by decentralized active power/voltage frequency and reactive power-/voltage-magnitude droop control laws. A paralleled ac system, such as a multiinverter microgrid, is susceptible to circulating currents due to differences in voltage magnitude, frequency, phase angle, or dc offset. Circulating currents due to differences in voltage magnitude and dc offset have been known issues reported in literature. However, an in-depth analysis of the problem is required to ascertain the deviation of the system-operating condition from the desired condition. This paper provides a mathematical model that predicts the effect of voltage-magnitude offsets on reactive power sharing between inverters. Simulation and experimental results verify the accuracy of the analytical results obtained from the mathematical model. We examine the effect of dc-circulating currents and propose a simple capacitor emulation control law implemented in software to eliminate dc-circulating currents. This solution is a possible alternative for hardware implementation to eliminate dc-circulating currents. The effectiveness of the capacitor emulation control law has been verified through experimental results. [ABSTRACT FROM PUBLISHER]