This paper proposes a novel hierarchical control strategy for improvement of load sharing and power quality in ac microgrids. This control framework is composed of a droop based controller at the primary level, and a combination of distributed power sharing and voltage conditioning schemes at the secondary level. The controllers in the primary level use GPS timing technology to synchronize the local reference angles. The voltage reference of each Distributed Generation (DG) is adjusted according to a voltage-current (V-I) droop characteristic to enable proper current and power sharing with a fast dynamic response. The droop coefficient, which acts as a virtual resistance is adaptively changed as a function of the peak current. This strategy not only simplifies the control design but also improves the current sharing accuracy at high loading conditions. The distributed power sharing scheme uses consensus protocol to ensure proportional sharing of average power. The voltage conditioning scheme produces compensation signals at fundamental and dominant harmonics to improve the voltage quality at a sensitive load bus. Experimental results are presented to validate the efficacy of the proposed method.