how to distribute profit

Discussion in 'Growing and Managing a Business' started by michaelgh, Feb 12, 2013.

  1. michaelgh

    michaelgh
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    There is a company (LLC) that sells art works and belongs to my friend. For some reasons, I don't want to be connected with this company anyhow but I do bring revenue to this company and contribute with my time and hard work, so my contribution is 50%. Now we want to split the profit. Could you recommend me how to do this in correct way?

    the only idea that comes to my mind is:
    my friend gets 100% of the profit from LLC, pays taxes and then give me my 50% in cash

    is there anything wrong with this?

    are there any other options?

    thank you
    Michael
     
  2. Rocky

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    How do you determine your contribution is 50%? Do you have any sales no. that you can compare to the overall sales? Was there any agreement between you to about the profit sharing?
     
  3. scifi

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    Contribution is 50% doesn't entitle you to 50% profit...What is your percentage of ownership in the company is the main question here..!! ???
     
  4. TimeRider

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    Hello michaelgh. Welcome to BAF forums. Since you are giving your 50%, I believe you should get 50 % back. But Can you explain what the problem is? Is he not giving you back the profit? I think if the profit is also generated from other means in the company, I also think 45% is okay. And what position are you in the company and who is the Founder / CEO if it? I believe hard work should pay. If you're not getting your full right, you should do something about it.
     
  5. Fergal

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    Welcome to Business Advice Forum Michael.

    Have you considered coming to an arrangement with your friend whereby you get a commission for any sales you bring in?

    From what you say, it sounds as if you are not shouldering any of the risks associated with the business. If you are not taking the risk, it would be unusual for you to receive 50% of the rewards.
     
  6. michaelgh

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    there are only 2 people in the company... I have an agreement with my friend that we split profit 50/50. he is absolutely Ok with it.

    the question is how can I get my 50% without being connected to this company? for example he gets 100%, pays taxes and then give me my part in cash
     
  7. ArcSine

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    Your relationship with the LLC could be viewed as that of a consultant or similar independent contractor. So LLC pays you a consultant fee / commission / etc. for your services. The fee is calculated such that it's half of the LLC's pre-fee net profits.

    LLC gives you a 1099 at the end of the year, and deducts your fee as an expense.

    Take care not to undertake any actions which might imply that you're a partner in the business, such as approving purchases, signing contracts, and so on. It's not guaranteed, but doing so would expose you to the possibility of being held to be a de facto partner, something it sounds as if you're trying to avoid.

    (Deja vu, huh? ;))

    The money you receive will be taxable income (income for personal services always is), but your only connection to the company will be as that of an independent contractor.
     
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  8. michaelgh

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    Thank you... this is a good idea but my name will be in the list of people who work for this company...

    what's wrong with my idea when my friend gets everything, pay taxes and then gives my my 50% in cash? technically all taxes are paid even if not by me..
     
  9. Fergal

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    The issue with that is that you would be receiving undeclared income. I don't know what country you are in, but the tax laws of most countries don't allow that. One reason some countries don't allow it, is because they charge a lower rate of tax on companies than they do on private individuals. Hence, what your suggesting would result in the government receiving less tax than they believe they are entitled to.
     
  10. bluesky98

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    Fergal is correct. From the government's point of view, the income is yours and should be taxed at whatever your tax rate may be. Therefore, you are responsible to claim it as part of your income.

    You can get the proceeds from him, but if the amount exceeds $600 in a year, you would need at 1099 from him. Make sure you give him a W-9. Most importantly, make sure you are truly meeting the definition of an independent contractor, otherwise your friend (and/or you) will be liable for taxes and penalties for misreporting (if I'm not mistaken, up to 2-3 times the amount due, in some states).

    http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F

    Additionally, don't forget business expenses incurred by you are deductible on your income tax (offsetting some of the income from your services to your friend).
     
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