Legal Question in Tax Law in California
Equity in company - how does it work?
I am employed as the seniormost executive in a small education company in Fremont. As a reward for my 10 years of service, I negotiated a 10% equity in the company. The owner says that there is no way that he can do a legal transfer of stock (stock grant) to me without me incurring a large amount of tax. So, he is asking me to accept a stock options type situation instead.
I would much rather receive an actual share in the business than a stock options type situation. If the taxes to be paid are in the thousands or tens of thousands, I would be inclined to pay them by getting a loan. However, it is not clear how much the taxes would be, or what process is to be followed in this case.
Your comments?
Note that I want initial communication by email, so I have put in a dummy phone number.
1 Answer from Attorneys
Re: Equity in company - how does it work?
you should retain a tax attorney to assist you with determining how best to accomplish your goal. a transfer of stock to you now would be taxable to you based on the fair market value of the stock (which may require an appraisal to determine value). there are numerous aspects of using options (and other possible alternatives) which should be reviewed both as they effect the company and as they affect you.
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