S-Corp question/concern

Hello,

i am 1 of 3 partners in an importing business (S -CORP). i am an equal shareholder and invested $250,000 in this business. my brother who operates out of his home also invested 250k and the 3rd partner was willed his 3rd of this business.

i live in florida where our office/watrehouse is located.

because of financial problems initially and a large SBA loan the partners salaries were very small so we could afford a couple additional employees.
i took the ssmallest salary while the other partners shared equal salaries. in addition the other partners get comapny cars while i do not.

initially i was ok with this game plan. however, in year 2 of our growing it is becoming apparent that the other partners intentions are to keep my salary very low while they get the vehicle and salary benefits.

there is no specific contracts or agreements by the partners having to do with salary/perks etc....

my question is this.

am i entitled to the same salary/perks than the other two partners based on the fact i invested the same amount?

what are my options if this gets ugly?
thank you for your time.

No.

Your options are very limited. The company is a corporation. It is run by a Board of Directors which I’m sure they control. That Board gets to decide who is hired and for how much. You are an employee of that company just like any other company. Your rights are similar there.

Simultaneously, you are a minority owner of the company. You have rights against the majority owners if they abuse their power by paying themselves too much, or by doing inside transactions that hurt the value of your stock. However, all of this is difficult to prove, and the burden of proof is on you. They just need to reply that their salaries and perks are reasonable compensation for what they do, I’m sure a very easy thing.

The point here is that you have two roles, one as minority owner in a corporation, the other as an employee. If you worked for IBM and owned a minority of their stock, you have no legal right to demand a higher salary.

Sorry for the bad news…

This just goes to my regularly mentioned point of being careful who you “partner” up with. That’s where 90% of all business problems come from.

wow! i guess my position is a weak one at best. thanks for the input.

i will have to look at my limited options i guess.

brian99

Since you are an equal partner and all of the stocks enjoy equal value you might consider selling your interests or cashing out and reinvesting in another venture. One you feel more comfortable in.
However, if your partners offer to buy your stock/cash you out at a discount, think carefully, it already sounds like your getting the short end.

i guess i am just getting screwed because i did what the company required to stay afloat.

what ia m upset about is the fact that what i appear being told is that once i made the initial agrrement i am held to it for a lifetime. how do the partner's pay raises get determined? bonuses? etc..?

i am very confused as to my rights. someone told me that as 1/3 partner i have to accpt 1/3 of all losses the company has but am entitled to 1/3 of the profits as well. right now it appears that i am 1/3 responsible if the company falls apart but not entitled to equal pay/benefits if the company is successful.

is this true?

It's the corporation that sustains the loses/gains not the individual. Sadly that could still equate to your returns being less or none. And, that doesn't stop your partners from continuing to draw their higher salaries and benefits as normal or even increase them,until you end up in the hole or worse.
I think it's time you seek the advice of an Attorney specializing in Corporate Business Law to save yourself from complete disaster. Have him review your contract and advise you of your options. Hopefully, you can right this wrong or escape with a lesser loss.
I can't imagine what your contract looks like....it sounds like a real doozie though...
Have you attended any meeetings with the other investors and asked them about this? After all it's your money and your entitled to answers.

hello mileaway,

i have been somewhat silent but because i can no longer sustain myself on my salary i will have to begin to speak up now. i agree that it is time i seek an attorney to review the partner contract.

at least then i can get some sleep at night and not worry about what i should have done or could have done. when your who retirement is invested and you are getting squeezed it is sickening!

i will keep the this board informed!
thanks for your input.


brian

Hi Brian99,

One more thing to keep in mind: I believe S-corps are treated like partnerships for tax purposes. What that means is that profits are taxed to you and losses are deductible by you. See you accountant for more details.

As for liability, a corporation is supposed to protect you from liability, assuming you either don’t have control of the corporation or follow proper corporate guidelines. In your case, I don’t think you have much to worry about with respect liability because you don’t control what the corporation does.

Please do keep us informed as to how things go!

i truly appreciate your input. we are visiting our company lawyer afer the holidays and issues will be discussed at that time. i will be very careful not to get duped by the other 2 partners.
i will keep you informed.

Have a Great Holiday Season!

Brian99