How Should a Business Owner Pay Themselves?
A sworn attorney explains that entrepreneurs must distinguish between three separate roles — shareholder, board member and employee — since each comes with its own legal way of receiving money from the company.
When people start their own company, it often feels natural to assume that money sitting in the business's bank account belongs to them personally. Legally, however, that is not the case: a company is a separate legal entity from its owner.
Gita Oškāja, a sworn attorney specializing in labour law, explains that to understand how an entrepreneur can legally take money out of their business, one first needs to recognize three distinct statuses a person can hold: owner or shareholder, board member, and employee.
In a small company, especially one run by just one or a few people, all three roles are often held by the same individual. According to the attorney, that does not change the fact that each role carries its own legal framework and its own form of compensation.
Three different roles
As an owner (shareholder), a person holds shares in the company's capital and, in that capacity, is entitled to receive dividends — a portion of profit distributed among shareholders.
As a board member, a person manages and represents the company, making decisions on its behalf. For carrying out these duties, a board member may receive remuneration.
As an employee — provided an employment contract has been signed with the company — a person performs the duties set out in that contract and receives a salary in return.
Oškāja stresses that understanding these three roles, and the type of income tied to each, is essential for entrepreneurs who want to properly and legally structure how they get paid from the business they created.
