Home – New Forums Starting your journey Director Fees versus Director Bonuses

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  • #990524
    Ris
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    Hi guys,
    I have a food manufacturing company and there are 2 of us as equal share directors. I work 5 days a week in the business and my partner, the other director will only be working 1 or 2 days, which is what we agreed on. We each own equal shares of the company.
    Q1. If we have profit that need to be paid out to directors or we want to pay ourselves a bonus because we can, is the $ split 50/50? Or is it calculated pro rata?
    I assume that we still own equal shares in the business…but I can only guess that considering I’d be doing the majority of the workload then this is the case.

    Is there a standard or formula to follow? TIA

    #1177356
    NickKaro
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    Ris, post: 206564 wrote:
    Hi guys,
    I have a food manufacturing company and there are 2 of us as equal share directors. I work 5 days a week in the business and my partner, the other director will only be working 1 or 2 days, which is what we agreed on. We each own equal shares of the company.
    Q1. If we have profit that need to be paid out to directors or we want to pay ourselves a bonus because we can, is the $ split 50/50? Or is it calculated pro rata?
    I assume that we still own equal shares in the business…but I can only guess that considering I’d be doing the majority of the workload then this is the case.

    Is there a standard or formula to follow? TIA

    Ris – profit is paid to shareholders of a company, therefore each of you are entitled to 50% of the dividends when paid.

    This is completely different to any salary/bonus paid to Directors, which is an employment relationship between the company and each of the Directors. Subject to what any governing documents might say (constitution, shareholders agreement) the company can resolve to pay its Directors a bonus split in any way.

    #1177357
    ThexArm
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    Ris, post: 206564 wrote:
    Hi guys,
    I have a food manufacturing company and there are 2 of us as equal share directors. I work 5 days a week in the business and my partner, the other director will only be working 1 or 2 days, which is what we agreed on. We each own equal shares of the company.
    Q1. If we have profit that need to be paid out to directors or we want to pay ourselves a bonus because we can, is the $ split 50/50? Or is it calculated pro rata?
    I assume that we still own equal shares in the business…but I can only guess that considering I’d be doing the majority of the workload then this is the case.

    Is there a standard or formula to follow? TIA

    These things normally form part of your accountants or lawyers work when they draft your company/shareholder agreements. If it is not clearly defined then it is time to visit your accountant again to get these issues documented in those agreements. These issues are common causes of conflict between partners.

    When the directors involve in the business they should have clearly agreed on how, when and how much they get paid their fees, salary, bonus and dividends. Directors fees, salary, bonus are expenses to the business. 50/50 split does not applicable at this stage. If you are working more days and your partner is working only few days then directors fees, bonus etc should reflect your respective workload.

    50/50 split only applies when the shareholders/directors (partners) decide to divide remaining profit left in the business.

    I am sharing my knowledge in the area and a practicing accountant could add more meat to it.

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