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Thread: CC's and salaries

  1. #1
    Full Member Inprogress's Avatar
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    CC's and salaries

    What is the best way to get paid out of your CC? Simple question really, quite surprised I was able to manage a simple, clear and concise questions

    Thing is, as the main and only member how do I pay myself? And if I bring it a partner, how do I pay him, what is the easiest way to pay a parter (member being actually registered as a partner or just partner off the books but employee on the books").

    But first things first. How do I go about paying myself out of the income genereated from my business? Do I merely deduct whatever amount I feel suitable and reference it as "Owner salary" or is there a beter, "legal" way of doing it (not meaning I'm looking for an illegal way? Yes I know, probably a very stupid question, just want to do it right from the get go.

    I want to pay myself a fixed "salary", which will increase on a yearly basis or as I decide, but I want to keep it as structured as possible. Basically build up to a comfortable salary (I have other venture I want to follow to) and then keep it there.

    Secondly, If I include a partner, him being a mate of mine, what is the easiest way to get him into the business? Do I make him a member or merely an employee? If he is an employee I suppose I have to register for UIF and what not? So being a member, I suppose I handle his "salary" the same way as my own?

    Thanks for reading my base level question and posting advice.
    Last edited by Dave A; 19-Sep-10 at 11:17 AM.

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    Full Member greghsa's Avatar
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    In my opinion it is better to pay yourself a fixed "salary", which will increase on a yearly basis or as you decide.

    The reason you are paying yourself a salary is: a) To keep SARS happy and b) To avoid a nasty suprise at the end of the tax period. You are basically paying SARS a nominal amount every month for SITE,PAYE and UIF. Effectively you are building a credit for yourself with SARS by paying every month, so that at the end of the year it is offset when you do your tax return. I would definately recommend that you consult a decent tax consultant. In my case for example my tax consultant recommend I pay myself the minimum salary, as there are other factors to consider e.g. I lease my vehicles.

    For the additional partner, make sure you have a decent contract including deliverables in writing. I would recommend him being an employee initially, and then the motivation is there to become a member if he shapes. Best to register him for PAYE,SITE,UIF etc.
    From past history, if something goes wrong and you didn't do it properly, you are on back foot and it ends up costing.

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    Gold Member daveob's Avatar
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    From other posts I have seen on the forum, if you do decide to have your partner become a member of the cc, PLEASE make sure that everything is in an agreement from the start.

    Things like :
    Members salary for the work they do ( like employees get paid, so to working members )
    Responsibilities - what's expected of each partner.
    If someone doesn't deliver or pull their weight, what's the 'punishment'.
    Distribution / re-investment of remaining profits after payment of salaries ( including members salaries ). All salaries are an expense item, and profit is calculated after expenses. So if you have 2 members but only one actually working for the cc, then that one should be entitled to a salary, and thereafter the profits can be distributed.
    Dispute resolution : what if a partner becomes unhappy. Can he sell his shares to anyone ? Can you ? do you have to give the other partner first option ? if so, how is the share valued.

    DO NOT think that you don't need all this documented and agreed upon before you start -- there are enough posts all over the forum about cc members sitting with problems with partners and they can't solve it - none of them considered the pit-falls when they started out - then it was all just stars in the eyes and "it won't happen to us" attitude.

    Maybe one of the legal experts on the forum would offer a source for a standard members agreement as a starting point to build up from.
    Watching the ships passing by.

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    Full Member Inprogress's Avatar
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    Thanks for the advice and input. Will keep this thread watching and scour the forum when I have time to do so. Luckily the partnership isn't pressing at the moment, future options to consider.

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    The cc is a seperate entity from you. It doesn't matter if in the daily running of the business they both appear to be you. In legal terms you are seperate.

    You could complicate matters and only earn interest or dividends or some other scheme like that, but the simplest and least stressful way is to get the cc to employ you as it would any other employee. The mind set is that the cc pays you a salary, not you pay yourself (subtle but important).

    Make out a monthly pay slip. Deduct uif, paye, med aid, pension and all those other exciting things. Pay the nett amount into your private bank account each month or if there is not enough cash in the cc bank account, transfer it into a loan account to be paid to you later.

    The advantages of this is that you don't get a horrible tax bill at the end of the year as you have been paying paye each month. You are eligible for uif benefits if things go south. You build up a personal credit record with your bank which shows regular income into your account. You have a better idea of how your cc is performing on a monthly basis (from how much cash id left over), rather than paying yourself whenever cash lands in the cc bank account. Its a form of discipline which prevents you from drawing extra funds from the cc just because there appears to be cash in the account, when it might be needed to pay other expenses later.

    Regarding the partner - if he works for the cc he would become an employee either way, whether just an employee or an employee who also happens to be a member (due to my reasoning above).

    If he is just an investor or silent partner. Then he would receive interest and dividends only.

    Make sure you have that written contract on exactly what each of you will be doing and how much you will earn for it. Also have a written agreement on what happens if one of you wants to leave the cc or wants the other one to leave. Get this sorted out while you are still mates.

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    Full Member Cream's Avatar
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    Another thing to keep in mind:
    If memory serves me correct you must register your company for EMP taxes (EMP101), you will not be able to deduct PAYE from salary's if you haven't registered. Only once you have your PAYE ref number can you only then apply for UIF at the Department of Labour.

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    Full Member greghsa's Avatar
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    Quote Originally Posted by Cream View Post
    Another thing to keep in mind:
    If memory serves me correct you must register your company for EMP taxes (EMP101), you will not be able to deduct PAYE from salary's if you haven't registered. Only once you have your PAYE ref number can you only then apply for UIF at the Department of Labour.
    I would definately look at software like Pastel's Micropay (For 5 employees) it will save you time in the long run and will make the electronic submissions and reconciliations a breeze. I would browse through sites such as
    http://www.bidorbuy.co.za/ , as you can normally save some money.

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    Cream (19-Sep-10)

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