Taxation on LLC shares?

[jdguerr]

Hello,
I run an LLC (taxed as an S corp) that is currently 50/50 with my wife. For the last 5 years, an employee has been working for us to build the company and we verbally agreed to a 40% stake in the business after 5 years. What is the easiest way to make this happen other than a change in the operating agreement? He won't be paying any money for this 40% stake because he's worked for it over the last 5 years. We grossed $500k last year and it's reasonable to assume that our company is valued at around $500k, so technically his stake is $200K.

Thanks!
Josh

 

[kirby]

Just cause you grossed $500K doesn't mean that is all profit (unless you were selling air at zero cost). So besure to deduct cost of sales AND salaries for the 3 of you AND any taxes on the profit. That will get you the net worth of the company and shoudl be a LOT less than $500K. Just saying that you need to take all that into account and be dead sure of the value of the company before you go and give 40% of it away.