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From your post I understand the 30% owner is claiming money as an independent contractor (using a 1099) therefore his "salary" is a matter of contract. If he does not have a written contract for salary, his claim is under oral contract, the statute of limitations for a breach of oral contract (the corporations "failure to pay him") is 2 years (he cannot claim anything older than 2011).
When he and my father bought the business his salary was at that amount. But I was wondering since he split it up that way with 1099 & W2 did he do anything illegal?
It was not illegal, but it may have been a violation of the corporation's governing documents, in which case he may have created an issue with his rights both as a shareholder and as an employee. (By the way, a written contract has a statute of 4 years in California, but an employee's right to wages is governed differently).
So where would I find out about the governing documents, by laws? He is not really an employee but an owner of the business, isn't that treated differently?
He is both an employee and a shareholder (I am speculating, but fairly certain here)l. You are entitled to a review of the books - as a 70% shareholder you will be able to get full access to the books, both the governing documents, the financial records, and the voting records, to determine what is going on with the corporation, determine what he is really entitled to, what he has been paid, and how he has been paid.
So nothing illegal with spliting up W2 & 1099? I do have full access, he has left. Company is in debt, he ran up a pile of bills. My Dad loaned the company over $150k, and now he want to sue for back wages. My Dad passed away a few years ago & this guy ran it unchecked.
There is nothing wrong with splitting it up. But it makes a huge difference in how he does it.
What do you mean how it does it?
First, there is a distinction between a W-2 employee who is entitled to protections and rights under employment law (this is actually much more of an obligation on the Corporation, and a 1099 independent contractor who is responsible for his own taxes etc. and is a contracted entity - he can only claim money owed back 2 years for oral debts and 4 years for written debts under this type of service.
Second, he has to show that the corporation allowed the change, maybe not in its bylaws, but at least in its business records - voting records or board meeting minutes, etc.
So he has to prove that his salary could be taken that way? He didn't put that in the board meeting records. But really started doing this after my Dad passed away.
He needs to identify exactly what his losses were (are they non-payment of contract damages under a 1099, or are they unpaid wages under his W2 employee status).
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