As a director, compensating yourself for your hard work can be complex. This article gives an overview of the 5 main ways you can pay yourself as a Director of the company.
How you pay yourself will have financial and legal implications, so it is always best to discuss with an Accountant or Lawyer to see what is best for your business.
Pay yourself through the Director’s salary:
With this method, you will pay yourself a salary, separating your personal income from the business.
You will need to consider:
What is a reasonable salary
Register for PAYG
Set up company payroll
Make Superannuation contributions
Track tax withholdings, contributions & payments through portal
Pay through the Company Constitution:
This method involves updating the company’s constitution to include director remuneration provisions.
You will need to consider:
Ensure the policy aligns with Section 202A of the Corporations Act 2001 and seek legal advice for compliance. You may need a special resolution and shareholder approval, which requires convening a general meeting to approve the changes.
Keep in mind that section 202A(1) is a replaceable rule and can be altered within your Constitution.
This may require a special resolution and approval by the shareholders. If the resolution is passed, you should convene a general meeting of shareholders and seek their approval for the changes to the company constitution.
Pay a Director’s Fees:
This is one of the most common methods for company directors to receive their pay. However, before opting for this approach, you should consider the following key factors:
Determine the Director’s Fee
Review the Company’s Financial Position
Document the Director’s Fee Agreement
Director’s Fee Approval
Through Company Dividends:
Dividends are a share of your company’s profits given to shareholders. If you’re a shareholder, you can receive dividends, but you should consider the following key factors before opting for this payment method such as:
Declare Dividends
Dividend Payment Options
Dividend Imputation
Pay yourself through Stock Options:
Paying yourself through stock options aligns your interests with the company's long-term performance, but requires an established stock option plan with clear rules.
Stock options align with director and company interests.
A stock option plan must be in place.
Rules should define the number of options granted.
A vesting schedule determines when options can be exercised.
Additionally, Lawpath provides extensive support through our Tax Plans and Accounting Advice Plans.
Check out the full article with tips from our Blog: How to Pay Yourself as a Company Director: A Comprehensive Guide