Legal Question in Business Law in Utah

S Corporation Advice

We are company that Setup an S Corporation in Utah about 7 months ago. I have 51% acting as president of the company, and I have two other partners that have 24.5% of the company.

2) At the beginning starting the company as an S corporation we knew that we had to pay ourselves a salary as employees/owners. We really didn't know how much to pay ourselves at the beginning so we guessed. We guessed that we should all get a $200 salary because we didn't know how much to make because it was a new business. As an example I make an average of $1000-$1500 based on my 51% distribution per month, and the other partners make $24.5% of that amount. Should my salary be higher than the other partners because I have more ownership which is 51%. And, Because I make more money should my salary be higher than my partners? I know it should be a reasonable wage, however my wages are higher than my partners. Should my salary be 51% higher to stay within the propper ratio of distribution pay?

2nd Question - One of my partners with 24.5% of the shareholder. Is working 4 days a month and thinks he should get his salary no matter what, but he hasn't earned it. He says he gets it even if he works 0 hours. Is this correct?


Asked on 7/04/04, 8:10 pm

1 Answer from Attorneys
Alvin Lundgren Alvin R. Lundgren, L.C.

Re: S Corporation Advice

Salary is for compensation for work performed. At end of fiscal year your accounting will show either a profit or loss. You get your ownership percentage (51%) of either as an end of year distribution (dividend). Salary is related to work performed, dividend is your compensation for your ownership interest. Your by-laws should set forth terms related to compensation, performance, etc. (If you do not have by-laws, they should be formed ASAP by a competent attorney - one with business experience. The bylaws are the rules by which your company is run. If no bylaws, then the Utah Corporations Code governs which may or may not be good for your company.) Generally, a company can fire or limit compensation for low or no performing employees, even if they have ownership.

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Answered on 7/04/04, 9:07 pm


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