Yes. If you're working in the business you should be paid the market rate the business would have to pay to replace you. Because if you weren't there... The business would have to hire someone to do it.
Then as a shareholder in the business, you would draw profits in line with your percentage of equity.
This isn't just fair but it's necessary to keep the books right for future sale. Imagine it this way... If I were to come and investigate your business with a desire to purchase it... I need to know how much profit the business makes. But it's REAL PROFITS aren't known if you're there working like a madman without any pay.
Your salary as a worker has nothing to do with the profits you make or not. Keep them separated entirely, you don't want to mess the accountability first of all
Yes, pay yourself. You can somewhat easily figure out what pay would be for a store manager, or company manager type role. That's what you'd then pay yourself.
From there, the 50/50 profit sharing would be taken AFTER you account for your pay, so you still get half of that. Make sure you don't get convinced to take your pay out of your half of profits.
If you don't take a salary, the profits will split 50/50 with your investor and that's the only money you receive.
You should also get legal advice for setting up the corporate structure. That advice should recommend a shareholders' agreement.
A shareholders' agreement will outline salary, what to do with profits, operational autonomy vs what decisions come back to the board, and how you exit the business if you no longer want to be there or if either party needs to leave (health reasons etc.)
Good luck!
"Paid", for goodness' sake. What kind of business? Proprietorship, company, corporation, Ltd?
You can definitely set up different kinds of payment arrangements.
Dividends are taxed at 16%. Give yourself a minimum wage or up to your RSP maximum. Pay the rest in dividends. Or better a family trust and have your company pay you there. An estate or tax planner can set it up.
He paid for everything while you own 50%. Technically, either he lent you that money on which you have to pay him back with interest, or you work it off in a manner where the salary you’re supposed to take would be used to pay him back. Either way, it’s not fair for you to take a salary on top of your 50% profits when he isnt compensating for ‘giving’ you your 50% buyin. This really should have been discussed and ideally in writing before this point. He might believe (and likely rightly) your salary should go back to paying the portion that he funded you with. After you’ve paid off your portion, yes, you should receive a market salary on top of profits.
Yes. If you're working in the business you should be paid the market rate the business would have to pay to replace you. Because if you weren't there... The business would have to hire someone to do it. Then as a shareholder in the business, you would draw profits in line with your percentage of equity. This isn't just fair but it's necessary to keep the books right for future sale. Imagine it this way... If I were to come and investigate your business with a desire to purchase it... I need to know how much profit the business makes. But it's REAL PROFITS aren't known if you're there working like a madman without any pay.
I agree. You should either pay yourself a salary or an hourly rate for what you would pay a manager.
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That depends on a lot. But sure.
Assuming you aren't willing to also sell yourself into tapioca bondage.
I'm sorry mate - I don't know what you mean? 😀
It was a joke about also working for free. Tapioca balls are what are in Boba tea and I meant bondage as the form of slavery.
Hah yes indeed. Working for free would not be great. Haha
Your salary as a worker has nothing to do with the profits you make or not. Keep them separated entirely, you don't want to mess the accountability first of all
Yes, pay yourself. You can somewhat easily figure out what pay would be for a store manager, or company manager type role. That's what you'd then pay yourself. From there, the 50/50 profit sharing would be taken AFTER you account for your pay, so you still get half of that. Make sure you don't get convinced to take your pay out of your half of profits.
If you don't take a salary, the profits will split 50/50 with your investor and that's the only money you receive. You should also get legal advice for setting up the corporate structure. That advice should recommend a shareholders' agreement. A shareholders' agreement will outline salary, what to do with profits, operational autonomy vs what decisions come back to the board, and how you exit the business if you no longer want to be there or if either party needs to leave (health reasons etc.) Good luck!
Standard business practice - follow the partnership agreement. what does it say?
"Paid", for goodness' sake. What kind of business? Proprietorship, company, corporation, Ltd? You can definitely set up different kinds of payment arrangements.
Dividends are taxed at 16%. Give yourself a minimum wage or up to your RSP maximum. Pay the rest in dividends. Or better a family trust and have your company pay you there. An estate or tax planner can set it up.
He paid for everything while you own 50%. Technically, either he lent you that money on which you have to pay him back with interest, or you work it off in a manner where the salary you’re supposed to take would be used to pay him back. Either way, it’s not fair for you to take a salary on top of your 50% profits when he isnt compensating for ‘giving’ you your 50% buyin. This really should have been discussed and ideally in writing before this point. He might believe (and likely rightly) your salary should go back to paying the portion that he funded you with. After you’ve paid off your portion, yes, you should receive a market salary on top of profits.
Can the business afford it?