Ways to Pay Partners: Salary or Owner's Draw

When two or more people start a business partnership, the main doubts are: how and when will I receive my payment? Can I randomly withdraw amounts from the company's cash register?? It is necessary to account for every penny taken from the company's cash flow? I'm a partner, So I can withdraw the amount I want, right?

Well then, when you have an individual company, or in society, which is the case discussed in this text, every penny must be noted when taken from the company's cash register.

To clarify, the partners' salary is called pro-labore. Pro-labore means “for work” in Latin. It is the remuneration that the partner is entitled to receive for his work carried out within the company. That way, If the partner does not perform any function within his company, he does not have the right to receive pro-labore, but only the amount corresponding to your share of the profit division.

Another way to withdraw money from your company's cash register, is through the anticipation of profit distribution. According to corporate law, “a legal entity can distribute profits to its partners or shareholders even before the end of the fiscal year.”

Nonetheless, it is necessary to have a contractual or statutory provision so that interim balance sheets can be drawn up, semiannually or in shorter periods.

See now the main differences between pro-labore and advance profit distribution.

SALARY VS OWNER'S DRAW
The main factor that differentiates salary from owner's draw, is that in the second case, the amount collected does not incur income tax or social security contributions on this withdrawal. For this reason, Many partners choose to have a lower salary and receive a higher percentage of the salary along with their owner's draw, thus avoiding paying taxes.

However, The company's accounting needs to be well carried out and very careful, This is because it is necessary that all financial transactions be proven through checks issued by the legal entity or amounts deposited in the name of the individual. Only like that, accounting records may discriminate, what is remuneration arising from work and that arising from social capital.

The fiscal cost of salary is considered relatively high, This is because taxes and charges are levied on your payment.. They are:

Income Tax at Source which can reach up to 27,50% of the total amount paid as pro-labore;
Individual Social Security Contribution (INSS)of 11% of the total amount paid as pro-labore, the maximum contribution ceiling to the INSS was respected;
Additional Employer Social Security Contribution of 20% about the value of pro-labore;
The payment of the 13th salary and vacations on pro-labor is not mandatory, as well as other benefits;

To calculate salary and owner's draw it is necessary:

In the case of salary:

Define the activities that partners perform or intend to perform within the company;
Define the value of the labor as if you were hiring a professional in the field.

In the case of owner's draw:

To analyze, the company's results, removing from billing all costs and expenses relating to the period;
Have a reserve of profits that will not be distributed, so that you have a source of investment when necessary;
Share the rest of the profit as dividends among the company’s shareholders, remembering that these values must be proportional to the share capital of each of the partners.

It can be considered that, that the payment of partners, regardless of whether it is through pro-labore or profit distribution, must be made from a percentage of the company's profit, never forgetting that before withdrawing member payments, It is essential to analyze the company's cash flow, to see if the balance supports such a withdrawal.

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