Money! Okay got your attention. The topic is how do you get money – profits – out of your business. It’s not as simple as sticking your hand in the register, or writing yourself a check, especially when there are multiple owners involved. There’s a few proper legal and accounting ways to get your reward for the hard work you put into your business. These include the obvious of paying yourself a salary or wage; and taking profits (we call them “dividends”). You can also sell your own shares in the business, or liquidate assets and distribute them to shareholders.
Profit Sharing
When you sell shares in your business, first of all you’re giving up some ownership and thus some control. In a closely held business that might not be the best idea, if you’re selling to a co-owner who takes over voting control of the business. If it’s a bigger business, though, a new investor / owner might be the fresh eyes the business needs to continue growing.
As always, when you sell shares there may be a capital gain or loss, so I always work with a CPA who knows how to work with small businesses.
Another way to take “profits” from your business is through dividends. This is the traditional way to make money from a business. When all the business debts are paid (usually quarterly, semi- or annually) and there’s a pile of money left over that’s not needed as operating capital for the next quarter, those are profits. They are paid out as profits to shareholders. In a corporation, each owned share of the corporation is entitled to one proportionate share of this pile of money.
Limited liability companies are of course different, and more complicated than that. But the concept of sharing in the proceeds of the business is the same.
Contact me if you have any questions on business transactions. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.
Email me at: palermo@palermolaw.com.
Be sure to check out my other blog posts HERE. Be sure to listen to my podcasts with Matt Mittan at BizRadio.US