You might hear a business owner talk about his or her salary coming from the business, but the truth is very few business owners are actually paid salary, especially among small businesses. The way that business owners actually pay themselves is strongly associated with the type of business they’re operating.
How Sole Proprietors Get Paid
Sole proprietors are business owners and not employees of their own companies, and that means they don’t receive a salary. They actually get paid by drawing distribution amounts from business profits. The term ‘draw’ is used to describe how these business owners are paid because any amounts taken from profits draw down on the ownership account.
How Partners Get Paid
Partners are similar to sole proprietors in that they do not receive a salary. Instead, they can take a distribution from profits of the partnership, and they are then taxed according to their specific share of the particular profits. The manner in which profits are actually distributed in an LLC or partnership will depend to a large extent on the language specified in the original partnership agreement.
How LLC Owners Are Paid
LLC owners are business owners and are also not considered to be employees of the company, so they are not entitled to any kind of salary. For the purposes of income and taxes, LLC owners are considered to be the same as sole proprietors. This means that they will take a draw in the same way that a sole proprietor would unless they are involved in a multiple-member LLC, in which case they would be paid as if they were in a partnership.
How Corporate Owners Are Paid
Any business owner of a corporation is considered to be a shareholder, and since he/she is a shareholder, it would entitle that person to take dividends whenever the Board of Directors deems fit to pay them. However, it happens often enough that companies going through serious growth or expansion decide not to give out dividends but to instead recirculate those profits back into ongoing business growth.
Paying Your Employees
Sometimes it can be difficult as a business owner to meet the weekly or monthly payroll, and you need a temporary infusion of cash to cover that shortage. At Mossberg Strategic Capital, we might be able to provide short-term funding to cover a situation like this, so contact us and let us discuss some options with you.