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VikingCoder

In case the CEO is reading this -

Turn it into a employee-owned company!

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I don't think that's actually easy to do without causing all current employees to incur significant taxes.

It's also difficult to win the lottery without incurring significant taxes.

In that case by definition you have the cash to pay the taxes.

No, you don't. The issue is liquidity. If I gift you something that is of substantial value, but cannot be easily sold or used as a security, it can really fuck you over. There are jurisdictions that allow deferring the tax liability in such cases, but the USA doesn't do that.

Lottery winnings are liquid.

Ah sorry, I misunderstood the post I was replying to. I was actually agreeing to it: Lottery winnings are different from major gifts of illiquid assets, because you can always just pay the taxes from the winnings. In any case, you become liable for the tax immediately after receiving the gift/winning. If you cannot do that without selling the asset, and the asset is impossible to sell in the short term, and you cannot take a loan against the asset, your best option can be to refuse the gift.

And yes, this is a little bit insane.

I should have been clearer, but we were pointing out the same difference.

Gifts in the usa are taxable to the giver, not the receiver. (In most cases)

The difference is that lottery winnings are liquid, you can just pay your tax burden out of the winnings.

Similarly, taxes are applied to capital gains when stock is sold, not when it is received or bought. The employees would not be taxed just for receiving the stock/ownership, only once they sold it and made it liquid.

Taxes are due at vesting.

To be clear: taxes are due when you receive the shares. For options, that's when you execute/purchase your options not when they vest.

edit: (in the US at least)

The taxes can also be due when you receive your options. That can depend on if you purchase your options or if they are granted to you and entitle you to a discount.

YMMV but an NQSO purchase agreement can be your friend.

No, you can absolutely be taxed just for receiving the stock/ownership.

If it’s not worth much and it’s spread across many employees, we aren’t talking about much.

Wrong. It will be valued at something ridiculous like 20x EBITDA (average for tech related companies) and you'll be taxed on that number.

Doesn’t that depend on who values it? Also, I get the impression they have quite a few liabilities.

In the GN interview they said they have plenty of cash.

I'm sure they'll have to write down a lot of inventory because prices went down, but for tax purposes their valuation is still going to be very high based on earnings. That's why private companies other than startups rarely go this route.

You're taxed for the value of the stock when you receive it, and you are taxed on capital gains when you sell it, if you're selling it for more than you received it.

Not sure why I'm unable to respond to iepathos' reply to this comment, but:

>The employees would not be taxed just for receiving the stock/ownership, only once they sold it and made it liquid.

This is incorrect; the initial grant is income and anything after that is capital gains. This is also how RSUs work.

If you click/tap on the relative timestamp next to the comment, you’ll be taken to a dedicated page where you can reply. Same way I replied to yours.

Hacker news does not display the reply button for a bit after someone replies to you as a means of trying to blunt quick back-and-forth discussion.

My sibling commentor has the workaround.

Oh, hi Steve!

I believe in this case it’s the depth (width?) of the nesting that limits the reply-ability.

I know there's probably a reason this isn't done, but: could you not create a new, worthless corporation; distribute its worthless shares to the new employee-owners; and then have this holding corp acquire EVGA, thus instantaneously inflating the value of the already-held equity to ~EVGA's share price?

Acquire using what assets? You're proposing fraud.

You're interpreting "acquire" as "purchase", but "acquire" just means "acquire." You, as the majority shareholders of a company, are perfectly within your rights to give your equity in the corporation you own, to another corporation, as a gift or donation. (Or, if you like, "for consideration" of $1.)

And make no mistake, that's already exactly what's being proposed here, in making EVGA an employee-owned corporation: a gift of equity from the current shareholders, to a set of new shareholders.

The only difference in what I'm describing is that there's a trust / holding corporation in between the givers and the recipients.

Would the shell company not then owe taxes on the value of the corporation it ‘acquired’, regardless of the dollar value of the acquisition?

If you ever think of a financial trick to avoid taxes and say "why couldn't companies do X", the answer without fail is "because it's illegal and you aren't aware of the specific law you're violating".

If this was legal all sorts of companies would do this all the time.

Depends on your tax laws. Here (Canada) lottery winnings are tax-free ;)

https://www.canada.ca/en/revenue-agency/services/tax/individ...

Throw enough lawyers and structuring at it and you can definitely make it work. Not make the tax go away permanently...but phase it over time & ensure they get dividends along with it to cover bill etc.

Exactly. I've had enough theoretical conversations about this to know there are organizations who would be happy to help assess any particular situation.

Different industry, but it might be worth looking into how New Belgium went employee owned, with apparently equitable results:

https://www.forbes.com/sites/christophermarquis/2020/05/01/e...

I know nothing...

...but give the current employees voting rights without equity, proportional to their seniority... (Or just 1 vote each.)

And then start rolling out equity, maybe, depending.

Taxes? You mean the thing poor people pay? /s

I’ve heard of companies doing something similar, but instead it’s a special class of stock (and the original one gets phased out through buybacks etc). This new class basically has a one time dividend that covers a chunk of taxes.

Not sure in EVGAs case what laws govern their business and where employees are and what existing structure is… but where there’s a will, there’s a lawyer to make a way.

I don't think that is true. There are a number of paths to convert to a employee owned coop that doesn't incur taxes for the employees.

Easiest would be to convert to some sort of new 501 non profit with employee control.

People don't have to pay taxes when they are hired at an employee owned company like winco, and students don't have to pay taxes when they join a housing coop.

They are such good board designers, they should open a design service.

OK, but they will still need a CEO.

Yes but the CEO's role would be very different.

if anyone needs any inspiration, in Germany the company's employee labor union has a board seat or two, by law (for share based companies above a certain size).

I just never see anything remotely close to that in the US discussions, by the people most interested in employee activism or union formation. I get the impression people don't even know its something to they could be putting energy towards.

first English google result I could find on the concept

https://www.worker-participation.eu/National-Industrial-Rela...

At every opportunity I drop Mondragon corporation. They have a long and impressive history, BBC had a documentary on it, which despite being filmed in the '80s, and worthless to them is being withdrawn from Youtube due to IP. Very interesting if you can find it, but most of anything I've seen written about the topic is.

Actually:

The Mondragon Experiment:

https://vimeo.com/161252994

Honeycomb does this as well https://www.honeycomb.io/blog/employee-representative-board-...

How so?

Accountable to employees and not "the invisible hand of the market" nor shareholders.

Not if they form a co-op!

All companies are employee owned. Vote with your feet.

> All companies are employee owned

False. Only a few are: https://en.wikipedia.org/wiki/List_of_employee-owned_compani...

The person you're responding to is not speaking literally; they're using what's called a metaphor to make a point that employees of any company exert walking power. The point may or may not be useful, but you have to finish reading the post before trying to reply with a gotcha correction.

has this power ever brought down a company? Has it made bosses responsible for worker injuries at work? Has it given maternity leave?

if not, its not really power

It has.

It certainly has. Employees have real power.

Power is not the same as ownership

> they're using what's called a metaphor

It isn't a metaphor, it is, in the words of Zizek, pure ideology.

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