Payments to Officer Owners of S Corp

[erchess]

S Corp has never had anything but losses. At least in the minds of the principals they are about to get nonrecourse loan from a venture capitalist who won't insist on being an owner of the corp. Amount of loan they are dreaming of is in the 300-500K range and they have gotten as far as being invited to the home of an individual who has the necessary funds and is also the maker of their major products and is known to have had no success marketing these particular products. Anyway if the money comes in the plan is to hire contractors some of whom will be paid base salary plus commission to sell their products. Will that create a need to start paying salaries to the owners who work in the business? Was I wrong in thinking that as long as the business was losing money they did not have to have salaries even though there were contractors being paid straight commission?

[ChEAr$]

Any business

S Corp has never had anything but losses. At least in the minds of the principals they are about to get nonrecourse loan from a venture capitalist who won't insist on being an owner of the corp. Amount of loan they are dreaming of is in the 300-500K range and they have gotten as far as being invited to the home of an individual who has the necessary funds and is also the maker of their major products and is known to have had no success marketing these particular products. Anyway if the money comes in the plan is to hire contractors some of whom will be paid base salary plus commission to sell their products. Will that create a need to start paying salaries to the owners who work in the business? Was I wrong in thinking that as long as the business was losing money they did not have to have salaries even though there were contractors being paid straight commission?

to include corporations should be run on solid financial principles. If overpaying a General Motors president by 20 million would create a loss, then his salary should be reduced.
(I know I know!)

But if my usual salary from my S corporation would create a loss, I would promptly reduce my salary.

In your client's case, same result. General principle is that if a corporation is not profitable, then no problem not paying sole shareholder/officer salaries.