Ask HN: How much does a founder pay on exit? Is offshoring dumb?

3 points by 55555 ↗ HN
Is it simply the following?

> Qualified dividend and long-term capital gain: Tax rate is 0% for the 10%–15% brackets; 15% for the 25%–35% brackets; and 20% for the 39.6% bracket.

Example:

> Let's say I start a company as the Founder and grow it over a period of years. I exit by selling my remaining 10% of shares for 50 million dollars (company valuation of 500m USD)

Do I simply pay a number very close to 20% (due to marginal taxation) of that 50 million dollars?

Essentially I am pretty well-versed in international taxation and have previously used offshore companies (I do not live in the USA, I have offices outside of the USA, and my customers are mostly not from the USA, etc, but I am American). For my next startup, which will be an interface for international buyers of wholesale goods, I am still deciding how to legally set up the company. Now obviously if I set up in a haven I can pay 0% tax on corporate income, but I'm planning for an exit, and when I sell my shares, I will still be liable to pay the US capital gains tax rate.

Basically my final thought is this: I may be able to save up to 15% on corporate income tax by using a haven, but if I'm planning for an exit, perhaps this doesn't matter at all. Additionally, even if not planning for an exit, if I'm able to raise money at a >15% more favorable rate in the valley as a standard Delaware c-corp, and have access to US capital markets, then perhaps it makes more sense to just form a Delaware C-corp and defer international tax minimization strategies until we have a big company. It certainly seems to me that 15% more optimistic valuations are possible in the valley as compared to Singapore or Hong Kong, for example, and the simpler corporate structure should allow investors greater confidence and security.

Any thoughts or feedback?

4 comments

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How are you planning on seeking financing for your company? No Silicon Valley VC will fund you unless you have a Delaware C-Corp.
Thank you. This is basically my point/question. There are obviously HK and Singapore based VC's but I reckon Valley VC's would value the company at a valuation that's more than 15% more optimistic.

My other question is regarding the outlined example: Do I simply pay a number very close to 20% (due to marginal taxation) of that 50 million dollars (when selling my shares in a Delaware C-corp)?

Assuming you put early exercise clauses in your contract and exercise your shares immediately, yes. If you don't early exercise, you may have to pay ordinary income rates.
If you are a US citizen, your personal taxes are entirely separate from the c-corporation, and accordingly whether the company is based in a tax haven is irrelevant to your personal tax liability.