Question 1:
I'm starting a new business. I will be the single member owner/employee of the S Corp company. My brother is funding 2/3 of the startup costs. My business will complement his business as well as being able to stand on its own. He and I have a really good trust between the two of us. Our life goals, ambitions and personality is identical. I would never lie, cheat or steal from him and vice versa.
We agreed that any net profits from this new company will be split 50/50. I understand that first I would give myself a reasonable salary for the work. Any net profits at the end of the day would be split between my brother and I. He doesn't care of want to be involved in the business other than to split the net profits. He doesn't even want to be noted anywhere in the business that he's an owner/shareholder. Yes, people would say he's stupid as I can cut him out and deny any agreements of the 50/50 split. From this perspective, I have nothing and he has everything to lose. Again, we have that kind of level of trust.
My question is how do I go about splitting the net profit with him without any unnecessary tax burden on me. What I was thinking is that whatever net profits from the company is disbursed to me, after taxes are taken from it, I would give him 50% of it when I receive it. As an example, say the company made a $1000 profit for the pay period or quarter. It's distributed to me and I pay whatever tax is levy on it. Let's say it's taxed at 20% for the sake of this example. My take home profit would be $800. Of that $800, I would give him $400.
Somewhere, I feel there are ALARMS going off but I'm not seeing them or hearing them.
Question 2:
With the S corp, how do I fund the company with my own money to make purchases for equipment and supplies and to be repaid back for them? Do I write up a loan agreement between me and the company? If so, any suggestions on what should be on the loan agreement since it's a new business and any future repayment amounts or dates are unknown.
This is all new to me and I appreciate your inputs.
Thank you!
Chuck
I'm starting a new business. I will be the single member owner/employee of the S Corp company. My brother is funding 2/3 of the startup costs. My business will complement his business as well as being able to stand on its own. He and I have a really good trust between the two of us. Our life goals, ambitions and personality is identical. I would never lie, cheat or steal from him and vice versa.
We agreed that any net profits from this new company will be split 50/50. I understand that first I would give myself a reasonable salary for the work. Any net profits at the end of the day would be split between my brother and I. He doesn't care of want to be involved in the business other than to split the net profits. He doesn't even want to be noted anywhere in the business that he's an owner/shareholder. Yes, people would say he's stupid as I can cut him out and deny any agreements of the 50/50 split. From this perspective, I have nothing and he has everything to lose. Again, we have that kind of level of trust.
My question is how do I go about splitting the net profit with him without any unnecessary tax burden on me. What I was thinking is that whatever net profits from the company is disbursed to me, after taxes are taken from it, I would give him 50% of it when I receive it. As an example, say the company made a $1000 profit for the pay period or quarter. It's distributed to me and I pay whatever tax is levy on it. Let's say it's taxed at 20% for the sake of this example. My take home profit would be $800. Of that $800, I would give him $400.
Somewhere, I feel there are ALARMS going off but I'm not seeing them or hearing them.
Question 2:
With the S corp, how do I fund the company with my own money to make purchases for equipment and supplies and to be repaid back for them? Do I write up a loan agreement between me and the company? If so, any suggestions on what should be on the loan agreement since it's a new business and any future repayment amounts or dates are unknown.
This is all new to me and I appreciate your inputs.
Thank you!
Chuck
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