How to calculate reduced profit for part time

[DonnaDaniel]

Hi
I am part of a partnership at present where profits are shared equally amongst the four partners.
We are looking at becoming a Ltd Company where one person will work reduced hours in the business (aprox 30 days per year).
Can anyone help me understand how the difference in the person's profit share be be calculated? Should we allocate different classes of shares?Some people are requesting that the person takes reduced profits only, whilst others are requesting that they also take reduced equity in the company. In order to make it tax efficient we will be taking a minimal salary for the for the first few years and creating a directors loan account to draw upon so will not be possible to do it just on salary.
Any comments or suggestions gratefully received - I have very limited knowledge in these things so any info welcome:)
Thanks

[MyITGuy]

Hi
I am part of a partnership at present where profits are shared equally amongst the four partners.
We are looking at becoming a Ltd Company where one person will work reduced hours in the business (aprox 30 days per year).
Can anyone help me understand how the difference in the person's profit share be be calculated? Should we allocate different classes of shares?Some people are requesting that the person takes reduced profits only, whilst others are requesting that they also take reduced equity in the company. In order to make it tax efficient we will be taking a minimal salary for the for the first few years and creating a directors loan account to draw upon so will not be possible to do it just on salary.
Any comments or suggestions gratefully received - I have very limited knowledge in these things so any info welcome:)
Thanks

The specifics will vary depending on a variety of issues, so it will ultimately come down to what the partners agree upon. As a quick example, You mention that 1 partner will be working approx. 30 days a year, but don't mention how much the remaining 3 partners will work.

I.E. Assuming all partners make the same capital investment, and are paid a salary based on the hours they work - I would say there shouldn't be a difference in the amount of profits they are paid as the salary should represent their efforts.
On the other hand, if the partners do not have equal investments, and are not taking home a salary based on their efforts - Then this is where the partners need to agree to a structured plan to ensure a fair profit payout.

[nealrm]

His percentage of profits should be equal to his financial liabilities in the company. If he owns 25% of the company and is thus responsible for 25% of the losses, he is entitled to 25% of the profits. However, his salary should be reduced or the salary of the other partners increased to reflect the different work hours. The salary would be removed before profits are determined.

The other option would be to reduce his ownership in the company to match his amount of work. Based on the 30 days per year with everyone else working 200, his ownership and profit share should be 5%.

[DonnaDaniel]

Thanks for that - I did not make it very clear but the person would work 30 days less per year than the others - with all their other duties taken into account they would actually work 10% less hours than the other partners.
can anyone explain in basic terms what alphabet shares are and the pros and cons of using them? would you then suggest that all partners receive an equal number of shares and therefore equal voting rights etc in the company but just less of a salary?
thanks