My business is structured as an S-corp and I'd like to find a way to provide equity to some key employees with some caveats... - Josh Loe

My business is structured as an S-corp and I’d like to find a way to provide equity to some key employees with some caveats…

My understanding is that in an S-corp, if I withdraw money for bonuses or any other reason, I must withdraw it in equal %’s based on equity. (i.e. if I own 95% and a key employee owns 5%, then if I draw $10k for myself, I must also draw $500 for them).

* This is an issue as I don’t want to have to pay them every time I take money out as a disbursement.
* There are also tax implications for this for staff that weren’t founders because they’re being given stock that has an immediate value

I understand setting up an ESOP is probably the best way to go about getting around this issue but based on my research will cost $50k-$100k to setup + $20k-$30k/year to administer which is not an appropriate cost at this stage of our growth (did ~$500k in revenues in 2017).

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Is there another option here that I’m unaware of or haven’t considered?

Thanks in advance for any help!



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