Who pays -- business or employee?

April 7, 2007 8:51 AM

Small-business dilemma involving a company with three owners who have an agreement to split profit three ways. Owner A needs new laptop and wants to expense it to the business, as 99% of business is run/done online. Owner B thinks laptop should come out of A's share of the $ and not be counted as a business expense unless Owners A B & C all get laptops. Who should pay for the new computer? The business? Or should the cost of the laptop be subtracted from A's earnings?
posted by youarejustalittleant to work & money (20 answers total)

Doesn't you business have an accountant? That's who you need to ask.
posted by bilabial at 9:01 AM on April 7, 2007

It's a business expense, the business should pay for it. The other owners will get their new laptops someday too.

I've gotta say, this is not a good sign for the business. Sounds like the partnership is not very solid.
posted by miss tea at 9:04 AM on April 7, 2007

It totally depends on the nature of the business. Are incorporated, some form of partnership or three independent contractors. Contractors can be required to provide their own tools, corporations have budgets for equipment but they also have formal processes for deciding what equipment they actually need.
posted by doctor_negative at 9:07 AM on April 7, 2007

Well it's not an accountant question- they're all perfectly valid options.

This is what happens when you have three co-founders!

The easiest option (and only fair one) would be for A, B, and C to get new laptops, and claim them as business expenses.

It's not fair for for A to say that he deserves a new laptop, but B and C do not.

If B and C do not want a laptop at this time, come up with some sort of technology upgrade plan (A gets a laptop now, B in 6 months, C in a year).

This way you can stagger out the costs and everything.

If it is an accounting question, and not just a "let's be fair question," it's totally legal to just get Owner A a laptop as a business expense. When you purchase computers, you don't buy everyone a computer to make it equitable for everyone. Maybe A is the primary programmer, webmaster, or whatever.
posted by unexpected at 9:07 AM on April 7, 2007

whoops, that should be "Are you incorporated...?"
posted by doctor_negative at 9:08 AM on April 7, 2007

My office has a few 'loaner' laptops that are checked out by staff for trips, presentations, etc. I think that unless the laptop stays around the office for shared use (or if everyone of a certain pay grade gets one), it should come out of the person's pay. So I agree with Owner B. What does Owner C think?

Software and perhaps even mobile internet services can be purchased by the business and that should take some of the sting away in that case.
posted by cowbellemoo at 9:10 AM on April 7, 2007

I'm not an accountant, but I'm pretty sure that the cost of the laptop could not be subtracted from A's share without it becoming personally taxable to A. IOW, A would be buying it with his or her personal money (and potentially deducting it as an unreimbursed business expense). Of course, allowing any employee to do work on personal equipment opens up a whole other can of liability worms.

I was a partner in a small business, though. The only concern should be what is best for the business, not for the working conditions of Owner A or the profits of B and C. Owner A has to make a business case to the company for getting a new laptop, just like any other employee, and the decision has to be made according to the company's normal procedures. The decision is not necessarily dependent on B and C getting new laptops, but A should conceed that everyone should get new laptops if the same business case applies to B and C.

"Fairness" of the trivial we-should-all-get-new-laptops sort should never be used to make business decisions. At some point, a growing company will get newer equipment, and setting a fairness precedent means there will always be someone complaining that they deserve new/better equipment, too.
posted by backupjesus at 9:17 AM on April 7, 2007

Assuming the laptop is for business use, "Fair" has nothing to do with this. This is not some school yard where everyone should get a chance to kick the ball. This is a business. If Partner A has a legitimate business need for a laptop, he should get one and charge the company as an expense to the company. When/as/if Partners B &C need a laptop or have other legitimate business expenses, they too should charge the company. With this laptop would Partners B & C will enjoy 2/3 thirds of either the efficiency gains or the additional profits that Partner A will bring to the table.

If the laptop is needed for personal use and not the business, (not clear from the question) then it should come from his share of profits. It can still be expensed to the company so it is a pre-tax item that reduces A's profit allocation, but he should pay for it by having his profit share be one half of a laptop less than the other two partners.
posted by JohnnyGunn at 9:20 AM on April 7, 2007 [2 favorites]

will=still
posted by JohnnyGunn at 9:21 AM on April 7, 2007

My question is, is the business currently being run from a personal computer that was purchased by A? If it is, then A does deserve a laptop that is purchased by the company, without having to purchase it themselves.

However, if there is not enough funds in the kitty, another option is to have A purchase the laptop, with his own funds (or his share of the business funds) and count it as either invested (if personal, non-business funds) or re-invested (if out of the company kitty's personal share of profits) as equity, entitling A to a bigger cut of future profits. That's how businesses work - you either use the profits to reinvest, its an expense, or its just profit you use for personal stuff.

I'm also going to nth the sign that this is not good for your partnership - how long have you been doing this? If this is a minor squable that's happened after a few years of doing this, that's okay. However, if you've been together a few months, I'd seriously sit down and make a plan on how this is going to be done so everyone has a say and nobody gets their toes stepped on.

Oh, and if you're not, become an LLC or Corporation ASAP, for reasons other than this.
posted by plaidrabbit at 9:27 AM on April 7, 2007

What no one seems to say is that this computer will become a major portion of the Business itself. So if the company owns it the company also owns all of the software and data on it. If person A needs it to do business then I assume the Business would be hurt if person A left the company and took 'his' computer with him.
posted by Gungho at 9:51 AM on April 7, 2007

Cut your losses and get out of this venture. If you guys are fighting over a laptop now, what kind of nastiness will go down when and if there is real money involved?
posted by mds35 at 10:26 AM on April 7, 2007

It seems to me that this kind of problem is to be expected. The "cut your losses" people are speaking from bad experiences, which most business ventures end up being, or no experience at all. I suppose their justification will be "youarejustalittleant wouldn't have brought it to AskMe if it wasn't already a major issue between the partners." Possibly true, but a terrible assumption.

backupjesus has the best answer, except for the liability stuff. Ya, I'm sure there are some issues, but you can't be worrying about that silliness and the success of your business at the same time. If the business has the money, and the need is legitimate, just do it.

Perhaps the real issue is that the "needed" laptop is going to cost. Did 'A' pick out a $3,000 laptop, when a $700 laptop would do just as nicely?
posted by Chuckles at 10:47 AM on April 7, 2007

Perhaps the real issue is what the "needed" laptop is going to cost.
posted by Chuckles at 10:48 AM on April 7, 2007

Is the laptop going to get used as mostly a business tool, or mostly a personal tool? If the answer is 50/50, then you could have the business pay for half, and the individual pay for half.

That being said, this seems RIDICULOUS. What happens when you need a new stapler? Does everyone need to get a new stapler, unless you pay for it yourself? Essentially, this question is about jealousy over office supplies, and doesn't really seem to bode well for equitable and peaceful future decision making.
posted by Kololo at 10:58 AM on April 7, 2007

The issue isn't a laptop, it's how you manage the normal stresses of business. This is perhaps one of your early examples of it, and it won't be the first or last, biggest, or meanest.

You have to allocate resources according to widely varying circumstances constantly.

Don't cut and run, but do spend time figuring out how your enterprise is going to deal with routine conflict, and diverging opinions amongst the three of you regarding what to do and how.

A few observations.... threesomes are a lot harder to deal with in startups than twosomes. Two can usually agree/compromise, but in a threesome, there is shifting alliance and if there is a conflict, at least one person is going to go away less than satisfied.

New businesspeople often get ahead of themselves and push to extract benefit from the enterprise too early, in my experience due to youth, greed, lack of focus. The ship comes first, as sailors say.

I'd marry people I wouldn't go into business with. You have all of the relationship stresses of a marriage with none of the tempering desires to preserve long term cooperation and trust. It is exceedingly tender territory.

Of course, a lot can be disguised with profits, but having goals of money,money, money and a me, me, me attitude among principals is not a good sign.

A business should be about making a perpetual entity that can eventually operate without the founders, a positive community enterprise that contributes to the growth of the principals and employees, the betterment of the community, and the economic security of the folks footing the initial risk. Of course, you'll notice that in my list, there is no laptop listed. Nor a company car. Nor vacations.

Get everyone on board with a common vision of what you are aiming at 5-10 years out, and make your decisions based on those goals. Then, decisions like laptops make themselves.

( You may enjoy reading Growing a Business, by Paul Hawken. )
posted by FauxScot at 11:06 AM on April 7, 2007 [1 favorite]

It seems to me that the simplest thing would be to have the business pay for it, have it be the property of the business, and have it used only for business, not personal purposes. If A is the only one who uses it because they're the one who maintains the site etc., that's fine.

Why does it need to be a laptop and not a desktop? Does A need to take it between home and the office, or what?

Is the issue that A, B, and C all have heavily computer-based duties, and you could justify getting new computers for all of them, but A is the first to ask for it (maybe they have the oldest machine, whatever)?

Is it that the laptop would be partly for A's personal use, or that they'd be keeping it at home with nobody keeping track of how they used it?

Also, what plaidrabbit said.
posted by Many bubbles at 1:40 PM on April 7, 2007

You can also allow A to expense the percentage of the laptop that would be devoted to work to the business, and make up the rest out of his cash share. If he's going to use it for business 40% of the time, and personal uses 60%, for example, it makes more sense than having the company foot the whole bill.
posted by klangklangston at 5:43 PM on April 7, 2007

IANAL, either, but I can't emphasize enough how important is is to have equipment strictly for business use and require the use of company equipment for all business. If an employee is charged with doing something illegal with a work computer, you want to be in the easily-understood position of "employer who provided a laptop for work purposes only and has a clearly violated policy against personal use," not "employer who has partial ownership of a criminal instrument." You could buy a lot of laptops for the additional legal fees entailed in defending the latter position.

The risks are greater for corporate officers, as comingling of personal and corporate assets is one of the factors considered if a plantiff tries to pierce the corporate veil. Furthermore, a tax audit would almost certainly bring close examination of officers' expenses.

So, while a partial-work-use laptop may be technically legal, the documentation required (how will you show 60% work use?) and risk involved makes part-compay-owned property a false bargain.

Or, to be really practical about it, who buys out whom when the employee with a partially-owned laptop leaves the company? What price is paid?
posted by backupjesus at 7:38 AM on April 8, 2007

For whatever its worth, I am also a 1/3 partner in small business.

If the partner who wants the laptop is going to be using the laptop primarily for the business the company should pay for it, case closed. If you are looking at this business as a long-term venture that is going to last over time, it stands to reason that during the course of time every partner will eventually have a need for business related equipment; if you are going to argue and bicker about "fairness" and worry about everything being 100% equitable every time this comes up you're intentionally setting yourselves up for disaster.

As one example, two out of the three owners of my business (and I'm one of the two) have company cars that are paid for through the business. I suppose Parter #3 could cry and whine that it isn't fair that we have company cars and he doesn't, but he is aware that we all look at this company as a long-term venture and there will likely come a point when he'll need a new car as well and the company will happily provide him one of his choosing. He doesn't need to have one now just because we do and everything always has to be 100% equal

On the other hand, if the laptop has little use to the business and your partner is just looking at getting free toys that are paid for out of money other than the same accounts used to pay his rent, etc., well, that's a whole other story.
posted by The Gooch at 8:14 AM on April 8, 2007 [1 favorite]