By: Martin M. Shenkman, CPA, MBA, JD
For a closely held business or professional practice, you need limitations (caps) on the maximum amounts that are to be paid to retired or disabled partners, to the heirs of deceased partners, and others. If not, the portion of working partners supporting no-longer-working partners could become unreasonable. The entire business could be jeopardized by excessive payments. The solution might be for your shareholders’ agreement to provide that all payments in aggregate shall not exceed 20% of gross revenue, and if they do, they will be deferred until the next year. Payments can be pro-rated to those who are due payments.
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