Partner Putting 100% of Cash... Attorney Mentioned I'm Liable for Taxes?

by a searcher

2 years ago

Spoke to a business lawyer earlier today and when I told him my partner would be financing the entire deal, he told me I'd be liable for taxes on the percentage of equity I receive on day one. Basically, if I got 25% of a company worth $1M, I'd owe taxes on the $250K because I didn't put any capital down. Is this true? I'm not sure I really wrapped my head around his explanation.

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5 comments

professional from Dartmouth College

There's a way to structure this to minimize liability but you have to involve a tax attorney to make sure it is documented correctly. A business attorney will have a general understanding of the principles but can't be relied on to provide the best advice around these issues.

2 years ago | like reply | 0 likes

professional from Philadelphia University

Yeah there needs to be a further conversation with the lawyer on this. Regardless, you're equity value would be $250,000 so you'd pay taxes ON that amount, not for that amount.

2 years ago | like reply | 0 likes

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