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If we are 3 owners, what percentage should we pay ourselves after operations expenses?

If we are 33.33% owners, should we have an equal draw? Or how should we calculate the pot of money that will be split among the members? What % of the total revenue?

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6

Becky, that pot of money that you are referring to should come from the net after-tax profits of the company. This is the amount that is left after the direct and overhead expenses. Before any funds are distributed to the owners/shareholders you should determine the amount of funding that you will need to grow your business in the future. This relates to additional working capital or investment in assets. In order to determine how much you need to reinvest in the company, you need to develop an accurate budget that will project revenues, expenses, and profits into the future - at least one year. It is good practice to decide early on to reinvest a certain percentage of the profits back into the business.

If some of the owners are active in the business then they should have been paid a fair market value for their functional position before any distributions are made to non-active owners. What is left can then be split according to the percentage that each owner holds in the company.

All of this should be contained in a shareholders' agreement.

5

To answer your question, the following general rules apply:

If your business is organized as a partnership, you'd each receive 1/3 of the total draw amount agreed to by the partners.

If it's organized as an LLC and you have an operating agreement, you can receive a distribution that's out of proportion to your 1/3 ownership interest, if it's stated that way in the agreement.

If it's organized as an S Corporation, you'd each receive 1/3 of the total distribution amount agreed to by the shareholders.

I would add that you can draft a partnership agreement with uneven splits but you do have to specify that. If you don't, the assumption is on an even distribution.

3

Gary is correct in his reply.

Typically your partnership agreement will detail the provisions of revenue / profit sharing. If you don't have a partnership agreement, I would recommend that you retain a lawyer and get one drafted up. The agreement should also contain provisions for the disillusion of the partnership along with other key aspects equity rights of the partners.

2

If all 3 owners own equal parts of the company, then you should split the income (after expenses) in the same way. This will help maintain equality and keep the partnership intact. If one person is getting paid less than the other, there will inevitably be issues later on.

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