Income Allocation

[jft1215]

Good morning everyone. I'm in the process of expanding my father's contracting company and in the process re-organizing it from a sole-proprietorship to a corporation. To keep his license and the history we can't form as a partnership so we're looking at either an LLC or Corporation. We live in California and it would be my father, brother, and I. We would be the owners and employees.

Is there a business structure that will allow us to allocate the income differently than the ownership percentage? To utilize the license my father needs to be a 51% shareholder but he doesn't need to get that large a percentage of salary/divinends/etc.

Thanks for your help!

[mikelouis]

In most cases it is shared based on percentages. But since it seems you will be doing most of the work, you need to come up with a way of sharing salaries based on your contributions into the business. Well I hope this helps.

[delusional]

I would also advise to do this based on shares. Payment can be unrelated to the amount of shares everyone has. You can even just count the work hours and pay per hour. As long as you, your brother and your father are on the same page about the agreement, I don't think this would pose a problem.

[Auror]

Salaries are different from dividends. Shares of stock of a certain corporation does not have anything to do with salaries. The more stocks you have, the more you would share in the dividends. For salaries, it would depend upon the agreement of the parties involved. It is also important to take note that not all of the net income would also be distributed as dividends.

So as a final word, your father will get the largest share in dividends but when it comes to salaries, he doesn't need to be the highest paid.

[Railan]

As the poster above says, it looks like there is a confusion between the dividends that the corporation provides to their shareholds and the salary that you would perceive from the company for the work you do for it.

For example, if you were the CEO of a company, receiving a salary for your directing job, that wouldn't prevent you from also having shares and receiving dividends as any other investor.

Just give dividends based on ownership and then create work contracts for each of you. Both things are unrelated, so keep them that way

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[raviseo120]

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