I started an S Corporation for my own business (software contracting and various SaaS products). A friend approached me with a viable idea so we built another application together. They are not an employee nor shareholder of my corporation at this point, but we've been building the new application with my S Corporation as receiving the profits it generates.
What would be the best way to split the profits 50/50, especially if this new application takes off and gets bought?
I would rather not sell them shares of my S corp since the S corp has other profitable projects unrelated to my friend's efforts, so I could see either:
- Start a new corporation with the partner and split the equity evenly, or
- Treat the partner as an employee or contractor and pay them (w-2 or 1099, respectively)
Since #2 involves much less paperwork, I'm leaning toward that, but am I missing anything?