A proper design of the voltage source inverter used for the load compensation is very essential to achieve good steady state and dynamic performance. In this paper, a detailed study on design and dynamics of the voltage source inverter is presented. Analytical expressions for estimating various parameters of the compensator are derived. The proposed method can be extended to design the voltage source inverter of any configuration to compensate unbalance and non-linear loads. The results are supported by detailed simulation study of three- phase, four-wire compensated system using PSCAD 4.2.0.