WalkThePath
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- Apr 3, 2017
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Anyone know best way startup company can do employee plan to minimize taxes for staff?
Seems the ESOP on the IRAS websites is very structured towards listed/big companies. ESOPs are ghost shares that are essentially just an accounting entry tied to the value of shares, but not actually shares. Treated as income, so if startup becomes big success, that means big tax, not same as investor that can take profit as capital gains...
Current situation is venture founders want to provide early employees with actual equity ownership of the company, where the shares will vest in 3 years (retention device). They already have a pool of issued shares reserved for this purpose, so they are actual shares allocated currently in the ownership of the founders, they are not yet-to-be-issued situation (would affect future valuation to issue).
Our thoughts were that if the seed value (as listed in the shareholder agreement) are being bought at $0.10, then this is the "value" of them? But their actual value is zero until the vesting, and then at that instant their value is "market price," whatever that may be.
The desire is to treat them as an equity instrument, that they are a gift that is given at essentially a value of zero (they cannot be exercised), and if the company improves, then this is capital gains appreciation (which should not be taxed)... no?
I'm totally sure an industry veteran knows exactly what is supposed to happen here, but even consulting with a legal firm yielded: "just leave it up to IRAS, they will tax it as income." That seems like a big steaming pile of Sub-Optimal.
Advice requested.
Seems the ESOP on the IRAS websites is very structured towards listed/big companies. ESOPs are ghost shares that are essentially just an accounting entry tied to the value of shares, but not actually shares. Treated as income, so if startup becomes big success, that means big tax, not same as investor that can take profit as capital gains...
Current situation is venture founders want to provide early employees with actual equity ownership of the company, where the shares will vest in 3 years (retention device). They already have a pool of issued shares reserved for this purpose, so they are actual shares allocated currently in the ownership of the founders, they are not yet-to-be-issued situation (would affect future valuation to issue).
Our thoughts were that if the seed value (as listed in the shareholder agreement) are being bought at $0.10, then this is the "value" of them? But their actual value is zero until the vesting, and then at that instant their value is "market price," whatever that may be.
The desire is to treat them as an equity instrument, that they are a gift that is given at essentially a value of zero (they cannot be exercised), and if the company improves, then this is capital gains appreciation (which should not be taxed)... no?
I'm totally sure an industry veteran knows exactly what is supposed to happen here, but even consulting with a legal firm yielded: "just leave it up to IRAS, they will tax it as income." That seems like a big steaming pile of Sub-Optimal.
Advice requested.
