How Can the Owner of a Corporation Draw Money From the Company?

Small corporations often have shareholders who own large percentages of the company's shares and wear multiple hats, as owners, directors and employees of the business. When this is the case, a shareholder can take money out of the corporation as a salary, loan, reimbursement, advance against profits or repayment of a capital contribution. The way the withdrawal is classified determines the tax consequences of the distribution.

Call a meeting of the corporation's board of directors. If you are the sole shareholder or own a majority of the shares and control the board, no meeting is necessary. If you don't own a majority of the shares of your corporation, your business partners or the representatives who have been voted onto the board must approval any significant withdrawal of money from the corporation.

Classify the type of withdrawal you want to take from the corporation. If you want the money in exchange for ongoing services rendered, the money should be classified as salary. Shareholders can also borrow money from the corporation as a loan. In some instances, you may want to take money out of the corporation to reimburse yourself for an expense you incurred on behalf of the company. Corporations pay out profits to shareholders in the form of dividends, and the board can approve a dividend payout at any time. You can also take money out of the corporation by selling back some of your shares or decreasing the value of your shares by taking back some of your capital contribution.

Vote to approve the withdrawal. The withdrawal must typically be approved by a majority of the shareholders, unless the corporation's bylaws specify a different procedure. Record the decision and the classification of the withdrawal in the meeting minutes. File the minutes with the corporation's records.

Prepare a document to memorialize the transaction. If the withdrawal is classified as salary, major reimbursement, dividend, stock buyback or return of capital, prepare a corporate resolution that establishes the approval of the board. If the withdrawal is a loan, prepare a loan document that specifies the repayment terms. If the withdrawal is for a low-cost reimbursement, no document is necessary.

Sign the document. A corporate resolution should be signed by the president of the board. A loan document should be signed by you and the board president. Even if you are the sole shareholder, you should formalize this decision in writing and sign the paperwork in your capacity as board president to create a contemporaneous record of your actions in case of a tax audit.

File the paperwork with the corporate records. Write a check to yourself to withdraw the money out of the proper corporate account, and record the transaction with debits and credits to the proper accounts in the company's bookkeeping system. If the withdrawal is classified as salary, you must deduct state and federal payroll taxes before making the distribution.