Using p-shares for employees?

investor profile

July 20, 2024

by an investor from University of Pennsylvania - The Wharton School in Dallas, TX, USA

Utilizing p-shares post-acquisition is a common compensation strategy that searcher CEOs employ in order to reward and incentivize key employees. This is a common approach primarily in traditional search deals where up to 5% of the common equity is reserved to allocate among key employees.

Some auditors and attorneys however believe that employees who receive p-shares can no longer be classified as employees. I'm not an accountant or attorney so please seek the advice of your accountant and attorney on this.

A popular approach here could be to use a PEO since the PEO is technically the employer-of-record for payroll and payroll tax purposes. This enables the company to grant the p-shares to that employee.

Happy to discuss further. redacted

1
1
82
Replies
1
commentor profile
Reply by a searcher
in Fort Wayne, IN, USA
The IRS is very clear on this, partners in a partnership are not employees (except for participation in some retirement pans) and cannot receive W2. They must get guaranteed payments and get a K-1. That being said, there are ways to setup a sister/child operating entity that is not a partnership for tax purposes and employ people through that, while giving them a profits or other equity interest in the parent entity.
Join the discussion