Determining the appropriate percentage of business income an entrepreneur should receive is a complex issue with no one-size-fits-all answer. The ideal percentage depends on several factors, including the business structure, stage of development, investment levels, risk tolerance, and the entrepreneur’s role and responsibilities. This article explores the key considerations in determining a fair and sustainable compensation strategy for entrepreneurs.

1. Business Structure and Legal Considerations: Setting the Foundation for Compensation
The legal structure of the business significantly impacts how income is distributed. Different structures have different implications for taxation, liability, and ownership:

– Sole Proprietorship: In a sole proprietorship, the entrepreneur receives all the profits but also bears all the liabilities. The entire income is considered personal income and taxed accordingly. The entrepreneur’s share is 100%, but this also means they bear 100% of the risk.

– Partnership: Partnership profits are distributed as stipulated in the partnership agreement. This agreement should clearly define each partner’s contribution, responsibilities, and share of profits. The percentage can vary widely depending on the agreement.

– Limited Liability Company (LLC): LLCs offer some liability protection while allowing flexibility in profit distribution. The operating agreement should specify how profits are allocated among members.

– Corporation (S Corp or C Corp): Corporations have a more complex structure, with profits distributed as salaries, dividends, or retained earnings. The entrepreneur’s share depends on their salary, ownership stake, and the corporation’s profitability. Tax implications are significant and require professional advice.

Legal Counsel: Seeking legal counsel is crucial to ensure the chosen business structure aligns with the entrepreneur’s goals and complies with all relevant regulations. The legal structure directly impacts how income is taxed and distributed.

2. Stage of Business Development: Balancing Risk and Reward

The stage of business development significantly influences the entrepreneur’s appropriate income percentage. Early-stage ventures often require significant investment with uncertain returns. As the business matures and becomes more profitable, the entrepreneur’s share might adjust:

– Seed Stage: In the seed stage, the entrepreneur might take a minimal salary, reinvesting most profits back into the business for growth. Their focus is on building the foundation and proving the business model. A small percentage of income, or even no salary, might be common.

– Startup Stage: During the startup phase, the entrepreneur might take a modest salary, prioritizing reinvestment while gradually increasing their share as revenue grows. The balance shifts towards a higher percentage as the business becomes more stable.

– Growth Stage: In the growth stage, the business is generating consistent revenue, and the entrepreneur’s compensation can increase significantly, reflecting their contribution and the reduced risk. A higher percentage of income becomes more feasible.

– Mature Stage: In a mature business, the entrepreneur’s compensation might be a combination of salary, bonuses, and a share of profits, reflecting their ongoing role and the business’s profitability. The percentage might stabilize or even decrease if the business is highly profitable and the entrepreneur’s role is less hands-on.

Financial Projections: Developing realistic financial projections is crucial for determining a sustainable compensation strategy. This helps balance the entrepreneur’s needs with the business’s financial health.

3. Investment Levels and Risk Tolerance: Considering External Funding and Equity
The level of investment, both personal and external, influences the entrepreneur’s share of income. Investors typically expect a return on their investment, which affects the entrepreneur’s ultimate share:

– Bootstrapped Businesses: In bootstrapped businesses (funded solely by the entrepreneur), the entrepreneur retains a larger share of profits. However, this also means bearing all the financial risk.

– Venture Capital-Backed Businesses: Venture capitalists typically receive equity in exchange for their investment. This reduces the entrepreneur’s ownership stake and consequently, their share of profits. Investment terms are subject to negotiation and differ greatly depending on the investment amount and the company’s development stage.

– Angel Investors: Similar to venture capitalists, angel investors receive equity in exchange for their investment, impacting the entrepreneur’s share of profits.

Equity vs. Debt: Understanding the difference between equity and debt financing is crucial. Equity financing dilutes ownership, while debt financing requires repayment. The entrepreneur’s share is directly affected by the type of financing secured.

4. Role and Responsibilities: Fair Compensation for Contribution

The entrepreneur’s role and responsibilities within the business should be considered when determining their share of income. A founder who is actively involved in daily operations might receive a larger share than a passive investor.

– Active vs. Passive Role: Entrepreneurs with active roles, managing day-to-day operations and strategic decisions, typically receive a larger share of income. Passive investors, who provide capital but are not actively involved in management, might receive a smaller share.

– Specialized Skills: Entrepreneurs with specialized skills or expertise that are crucial to the business’s success might negotiate a larger share of income.

– Market Value: The entrepreneur’s market value, based on their experience and skills, can also influence their compensation.

5. Regular Review and Adjustment: Adapting to Changing Circumstances

The entrepreneur’s share of income should not be static. It should be reviewed and adjusted periodically to reflect the business’s performance, the entrepreneur’s contributions, and changes in the market.

– Performance-Based Compensation: Incorporating performance-based bonuses or incentives can align the entrepreneur’s interests with the business’s success.

– Market Benchmarking: Comparing the entrepreneur’s compensation to industry benchmarks can help ensure fairness and competitiveness.

In conclusion, determining the appropriate percentage of business income for an entrepreneur is a multifaceted decision requiring careful consideration of various factors. A well-defined compensation strategy should be fair, sustainable, and aligned with the business’s goals and the entrepreneur’s contributions. Seeking professional advice from legal and financial experts is highly recommended to ensure a sound and legally compliant approach.
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If you have any questions or would like to share your thoughts on the column, feel free to send an email to jca.bblueprint@gmail.com. Looking forward to connecting with you!

Basic is the rule that the three branches of government have distinct functions and one may not intrude into the domain of the other. Essentially, the executive department executes and enforces the laws enacted by the legislative department and the judiciary interprets the laws. The three branches are separate but equal in their respective powers within their province. But all three branches are under one large organization called the bureaucracy.

This fundamental principles under a republican form of government bars one branch from exercising powers and functions of the others. What the present senate president had been doing insofar as the impeachment complaint of the incumbent vice president had brought to the fore the nagging questions on the separation of powers.

This after the incumbent senate president had arrogantly acted as interpreter of the laws, chiefly the constitution which power is exclusive within the province of the judiciary. He has expressed legal opinions that are actually deemed his own personal interpretation of the laws and the constitution. He has the temerity to stand with his own interpretation despite contrary opinions of legal experts, some of them law professors, retired justices and even framers of the constitution.

The delayed action on the impeachment complaint is rooted on the self-righteous stance of the incumbent senate president who posited a different interpretation of the constitutional provision that requires the senate to act on the impeachment complaint forthwith. He contends that the word does not mean immediately and such interpretation is uniquely just now. He stubbornly insists that the word forthwith is to be understood not on the basis of the rules on statutory construction but on his own interpretation.

He is fond of using ad hominem when his arguments are defeated by contrary positions that are grounded on strong foundation. The two framers of the constitution had even revisited the minutes of the debates during the constitutional convention just to prove their point. But the incumbent senate president stubbornly insisted on his own construction of the word forthwith, even questioning the lower house of the legislature on its purported delayed action.

He then questioned why there is no noise on such delay while his actions are being branded as delayed that is not only purposeful but intentional and calculated to favor the impeached vice president. While the debates on the issue seems cyclic and unending, he diverted the issue by taking pending legislative actions a priority over the impeachment.

Motions from the senate minority to convene the impeachment court by taking their oath as senator judges had likewise been derailed by a motion to dismiss even without trial. The movants who are renowned factotums of the former and now detained president as well as the impeached vice president had interrupted the proceedings by usurpers.

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WITH the way the world us currently developing, with so many things coming out that can easily grab our attention and interest, we really would need to hone our skills at sifting and discerning, since these developments can easily give us a lot of dangers even if initially they can offer, or at least, promise to give us a lot of good.

These are skills that are urgently needed these days. With so many things competing for our attention, we need to know which ones we ought to give priority or which ones are truly God’s will for us. We cannot deny that there are many things that can look like they come from God but are not.

For this, the first thing to do is always to be guarded, and not just allow ourselves to be easily held captive by the many charms these new developments offer. We need to be clear about what the real and ultimate purpose of our life is, that is, to be properly anchored and focused, so that no matter how things go, we would not get lost or confused.

To be properly anchored and focused means to have God as the be-all and end-all in all our human activities and affairs. More specifically, to have love for God and for everybody else as the motivating principle of our life.

That’s when we would be able to distinguish what is essential from what is non-essential, what has absolute value from what only has relative value. We would have a proper sense of priority that would guard us from falling into self-indulgence which is actually the very opposite of true love.

Let’s never forget that we have a very strong tendency toward self-indulgence. That is why Christ clearly told us that for us to follow him, which is what is proper to us, we need to deny ourselves and to carry the cross. (cfr. Mt 16,24)

We should not ignore this clear indication Christ gave his disciples. We have to strongly convince ourselves that such indication never undermines our humanity. What it would rather do is to purify our humanity, put it on the right path in pursuit of our ultimate goal, and eventually elevate it to the very life and nature of God himself as we are meant to have.

This habit of self-denial would enable us to do God’s work, which is actually meant for us as his children, sharers of his life and nature, while being easily flexible and adaptive to the varying challenges and circumstances of the times. We have to be wary of our tendency to be trapped into some closed system of routine, if not to be imprisoned in our comfort-zone.
Self-denial will obviously involve certain detachment from things. That is why we should intensify our union with Christ as we immerse ourselves in the things of this world. We can do that if we know how to pray always, converting everything into a form of prayer, a form of engaging ourselves with God.

For this, we certainly need to train ourselves and to acquire a certain discipline, so that our union with Christ would be kept alive. We have to realize that our life is supposed to be always a life with Christ and for Christ.

Only then can we learn how to bear all things to achieve the fruitfulness of Christ who gained our salvation through his passion, death and resurrection. The paradox of dying in order to be fruitful would become a reality in our life.