Thread: Compensation for Co-Owners of Inspection Firm

Looking for opinions here:

Company has two owners
Company has an office manager that does most of the day to day stuff and assume any other non-inspection work is split equally amongst the partners
Company has several employees that are compensated roughly 50% of the inspection fee on the jobs they perform

What is the most equitable method of compensating the owners?

A: Owners pay all their own personal expenses (vehicle, computer, tools, etc.) and get what's left from their own inspections as well as share in the profit/loss from the other inspectors and general company operating expenses?
B: Owners are paid the 50% just like the employees for the inspections they perform and the company pays all of each owners expenses as well as all other general company expenses?
C: Some other idea - please explain

The difference between A & B only becomes different when there is an imbalance in the # of inspections performed (or $$ made) between the owners. Otherwise, it would be the same.

z. Owners split what is left after all expenses and taxes are subtracted from all income lumped together.

Presuming that owners do equal amounts of work (which does not mean the same work, one could be excellent at sales and marketing, one does inspections) the split could be 1/3. 1/3, and 1/3 (owner, owner, company).

Really all depends on how much is left over.

Added with edit: I should add that it also matter what the comparative investment of each owner is.

It's also going to be dependent on how the company is incorporated. Talk to a tax professional.

Like Ken said, talk to a professional about how the company is set up: S-Corp. LLC or partnership.
Makes a huge difference. With an partnership, income flow differently than a corp. Based on experience (how I have done wrong), you want to end up setting up regular salaries for the owners just like you do your employees, pay SSI, workman's comp, etc., and then profits could come as shares, bonuses, or dividends at end of year. If both owners have equal opportunity to do inspections, then pay yourself for those jobs as you pay the employed inspectors + plus some sort of management salary. If as Jerry mentioned in an important note, the arguments usually come between owners when they carry different type of work loads. i.e. - You may have to assign a different salary category if one of the owners does a disproportionate amount of marketing or bookkeeping. and makes less from inspections.

What you really should do is talk to an attorney. Like the other responder said, your compensation will depend very much on the type of business entity you select. Your choice will also determine how the business and the owners are taxed. In addition, entities like partnerships have very low protection against personal liability- meaning that owners can be liable for all business debts and anything done by another owner or any of the employees acting on behalf of the business. LLC's, on the other hand, have very strong protection from personal liability. People anxious to get their business up and running often overlook the importance of protecting themselves from liability and instead focus on organizing everything else. However, without protection, if one of your employees got into a bad car crash on the way to a job, the owners could be personally liable for any and all damages flowing from that crash. With a entity like an LLC, only the LLC would be liable so the owners' personal assets (home, car, etc.) would be safe.