Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

Parent Full thread

For legal advice, you apparently have money, so talk to the people who trade money for legal advice.

Are you positive that selling your company is the only mutually beneficial transaction you and the acquiring party can arrange? There are many possible options, with VASTLY different tax consequences but only minorly different changes on the ground. Stock sale != asset sale != IP licensing agreement != sudden decision of all key employees to change jobs.

Consider BobSoft, a hypothetical company with three engineers and some IP which is 100% owned by Bob. If BobSoft gets acquired by Google via Google buying all the shares from Bob, Bob has capital gains up the wazoo. If on the other hand Google buys all the assets of BobSoft, BobSoft continues to be a going concern. It continues paying Bob a salary for a few more months, puts around doing whatever BobSoft would do in the absence of their main line of business, hits the magic day on the calendar, and then buys all stock in itself back from Bob, who now has long-term capital gains. BobSoft then spins down in an orderly fashion.

Ask your competent legal advisers for how to work this such that you don't trigger the ire-RS. This is what they do.

More broadly: every tax cutout, no matter how well-intentioned, distorts the economy by paying smart people to spend more time figuring out how to hit the algorithm versus doing whatever they would otherwise do to earn money.

> More broadly: every tax cutout, no matter how well-intentioned, distorts the economy by paying smart people to spend more time figuring out how to hit the algorithm versus doing whatever they would otherwise do to earn money.

Worse, the smart people often figure out a way to go beyond whatever tax break was intended, then other smart people have to spend time figuring out how to tweak the tax code. The tax code then grows.

My favorite example. Once upon a time a large company (I think it was General Motors) was preparing to pay a dividend, which would count as ordinary income for the shareholders. One of their smart people got the bright idea of instead of a dividend, doing a stock split to slightly increase the number of shares (say, a 50 for 49 stock split), then having the company do a buyback to reduce the number of shares (say, buy back 1/50th of the shares). The split was not a taxable event, and the buyback could then be reported by the shareholders as capital gains. Ta-da! Ordinary income converted to capital gains.

So now there are something like three pages of regulations and tests to determine how to classify a stock buyback to stop that trick, but not to penalize buybacks that aren't for tax avoidance, and to anticipate possible loopholes in those rules or close loopholes that have been found in them.

Good suggestion. I've had two well-regarded startup attorneys look at the situation, and the acquirer has had their counsel look at this as well (we're not their only acquisition in this set of circumstances). There's no solution that does not trigger other issues.

Besides, my goal isn't to avoid the taxes, period; it's to put the money in to something that the government and I both agree is a worthwhile alternative: creating economic value through continued investment. I'm just looking for a way to do so with modest risk and return, instead of the very high risk and return of a typical startup investment.

Does this strike anyone else as... well, greedy?

I don't quite mean "greedy" --- I mean dangerous. The OP is about to "win at life". Why tempt fate?

What I'm saying is, if PG hadn't sold Viaweb at all, then YCombinator would never have existed. But if he had sold Viaweb for, say, 15% less than he did... then there's a good chance YC would have been created anyway, because he would still be wealthy.

So again, why tempt fate? It seems like the best advice is "just get the deal done".

Wanting to keep the proceeds of what you've created greedy? No. And he sounds like the sort of person who'd do something far more useful to society with the extra 15% than the federal government would.

you're assuming a 7 figure exit. this might not even be a six figure exit.

which still sounds good for less than a year of work!

Less than six figures sounds good for almost a year of building a successful company? Seriously?

I don't understand why you'd characterize it as "greedy," "dangerous" or "tempting fate." Nobody's advocating doing anything legally or medically sketchy — that's why he said to get the plan approved by the people who know what's OK and what isn't.

I also don't understand what PG's cut of ViaWeb has to do with anything.

Assume for a moment that the OP has received an offer for a large amount of cash.

That cash isn't in his bank yet. The offer isn't final until the cash changes hands.

In that position, it seems like a bad idea to try to micromanage the details of the offer. Just take the money before they change their minds.

Who knows what the OP could accomplish next? I do: if the offer falls through, he'll accomplish whatever his current startup is designed to accomplish. In PG's case, that would've been online stores. YCombinator probably wouldn't have existed.

I'm not sure I follow. Are you saying that negotiating is always a bad idea if you would benefit at all from the current offer?

Reply on news.ycombinator.com