ROBS impact on investors

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by a searcher from Columbia University - Columbia Business School
in Scarsdale, NY 10583, USA

1yr ago

ROBS impact on investors

I am planning on funding my deal with ROBS and some outside friends and family capital. As I assess my search, and think about looking at bigger deals, outside capital will become more important. Has anyone here funded their deal with ROBS and outside capital? A ROBS means a C-corp so its not tax efficient for investors. Was this a big issue? A non issue? I would love to chat about this. Thanks!

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reply by a searcher 1yr ago
from University of Pennsylvania in Seattle, WA, USA

The first layer of taxation is not counted as return to investors - if you are setting up an IRR hurdle, the first layer is really a hit against the searcher not investors. If you pay dividends, that will count towards IRR but is also taxed at a lower rate, on par with capital gains. If you don't pay dividends, let the pref compound, and use QSBS it could be tax free for investors.

reply by a searcher 1mo ago
from Lehigh Univervsity in Orlando, FL, USA

On the issue of double taxation…if you do a deal with no investors, can’t you just leave the cash in the business for the time being to avoid the double tax (invest or fund growth)? And if you can leave the cash in the business to avoid double taxation - can you then use the c-corp funds to buy-back the shares owned ROBS plan? Maybe wishful thinking but wouldn’t this avoid double taxation b/c cash is left in the business and those funds then buy-back ROBS shared to avoid the double tax?