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This depends on the tax situation of the country you live in. If you do the math, you might realise to get $1m in personal income by declaring dividends, you ac

This depends on the tax situation of the country you live in. If you do the math, you might realise to get $1m in personal income by declaring dividends, you actually need to earn $2m in corporate profit. So to get $3m (capital gains from a sale), you would need to earn $6m in taxable income. Meaning it would take you 4/5/6/7 years. Also, if you then reinvest that $3m in more traditional assets (stocks/bonds/property/alternatives), you can earn 5-10% on that capital ($150-300k per year), WHILE working on something new. Capital is awesome.

petercooper 11y ago
Boring calculation for people in the UK (as I am, and I've thought about this quite a bit ;-)). Under certain conditions you can use "Entrepreneurs' Relief" to only pay 10% capital gains on your sale of a business (up to a limit of £10m), so a £3m sale could net you £2.7m in hand. Depending on many circumstances, £1m in dividends (per year) should net you around £750k. So it would take about 3.6 years to make the same as selling for current 3x annual profit. However, if your profits were increasing by more than 10% per year, it would be a wash.
- charlesdm 11y ago
  You also don't need to pay corporate tax when booking a capital gain on your shares, so the tax advantage is actually a lot more. £1m in corporate income is taxed at 20%, so you're left with £800k after tax. Then you declare a dividend, and pay a dividend tax. That'll be 25-30%, so you'd be left with £800k - 30% = £560k in pocket. To earn £3m (in pocket), you would have to generate approx. £5.25m in pretax corporate profit. Whereas with a share sale, you will be taxed at 10%, meaning you're left with £2.7m (if you sell for £3m). A significant difference. I live in Belgium, where the difference is even larger. Capital gains on share sales are tax free, corporate income + dividends are taxed at about 45%.

petercooper 11y ago

Boring calculation for people in the UK (as I am, and I've thought about this quite a bit ;-)). Under certain conditions you can use "Entrepreneurs' Relief" to only pay 10% capital gains on your sale of a business (up to a limit of £10m), so a £3m sale could net you £2.7m in hand. Depending on many circumstances, £1m in dividends (per year) should net you around £750k. So it would take about 3.6 years to make the same as selling for current 3x annual profit. However, if your profits were increasing by more than 10% per year, it would be a wash.

charlesdm 11y ago
You also don't need to pay corporate tax when booking a capital gain on your shares, so the tax advantage is actually a lot more. £1m in corporate income is taxed at 20%, so you're left with £800k after tax. Then you declare a dividend, and pay a dividend tax. That'll be 25-30%, so you'd be left with £800k - 30% = £560k in pocket. To earn £3m (in pocket), you would have to generate approx. £5.25m in pretax corporate profit. Whereas with a share sale, you will be taxed at 10%, meaning you're left with £2.7m (if you sell for £3m). A significant difference. I live in Belgium, where the difference is even larger. Capital gains on share sales are tax free, corporate income + dividends are taxed at about 45%.