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In a Sub Chapter S corporation where there are two owners/partners/executive managers

Business 2 views 2 answers
Can the partner who is working more hours get paid for those hours? The other partner will only work his 40 hours and that is all. He is saying that with a sub chapter S the partner who is working more can not receive any more money. At the end of the year the lazy partner gets his 50% but he hasn't put as much into the business to make it grow. What is legal in this situation? A time clock is being used to calculate the amount of hours the partner works but the lazy one won't punch in.

Attorney Answers

2
Bradley William MillerBusiness AttorneyColumbus, OH ·
For an S-corp, if you have shareholders (owners) who also work in the business, each should be paid a "reasonable salary" for their work. You can also make distributions to the shareholders in proportion to their interest in the company. What is "reasonable" as a salary for each shareholder depend on various factors such as education, experience, job roles, and what people are getting paid in similar roles and situations. From a practical standpoint, it is up to the officers or whoever is charged with conducting the operations of the company to determine salaries - that is probably the two shareholders in this situation. While the amount of time put into the business can be a part of that determination, unlike with hourly wages the amount of compensation won't be determined solely by the hours worked. It sounds like there are some issues between the two shareholders that need to be worked out. If they can't come to an agreement on how to handle this, the shareholder who is working more might want to reconsider his or her options and place within the company. Good luck.
0 upvotes
Andrew John ContigugliaCriminal Defense AttorneyDenver, CO ·
Brad hit the nail on the head! There is a difference between ownership and management of a corporation. Just because you own interests in the corporation, you might not be doing any of the management of the corporation. That is what is happening with your co-owner. (note: partners are owners in partnerships; shareholders are owners in corporations). You are entitled to a salary for the work that you do for the corporation. Perhaps your By Laws or your Minutes of the Initial Meeting of the Board of Directors set out a reasonable compensation for its employees. As the individual who is running the show, you should be compensated for that time. Draws, or dividends to shareholders are only necessary if the corporation can afford it. I suggest you implement a payment scheme for each of you. Maybe it's get paid $25.00 an hour for your hourly work. He won't make as much for the work he puts in, but he will still get his 50% draw when its feasible. Good luck!
0 upvotes

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