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A couple of questions on the financial terms (words) Jason used in the OP: >Unlike companies that reinvest all or most of the money back into the company ever

by vram22 10y ago

A couple of questions on the financial terms (words) Jason used in the OP: >Unlike companies that reinvest all or most of the money back into the company every year, we take money (profit) out every year in the form of distributions (we’re an LLC) What does that - "distributions" - mean? That they take the profit and share it between the owners / partners of the company annually? >We’re still an LLC at Basecamp. The simplest pass-through structure you can have at our size. What does a pass-through structure mean? Update: Thanks for the answers, guys.

carsongross 10y ago
A distribution is the paying out of profits to owners of a business. Distributions must be paid in proportion to ownership share: if you own 50% of a company you must be paid exactly 50% of all distributions. Distributions are not subject to payroll tax, which is a nice benefit of them. Pass-through entities mean that the tax liability for the entity "passes through" to the owners of the company, so the company proper does not have a tax liability, rather the owners do. When I am God Emperor, all company dividends will be deductible against corporate taxes, to encourage companies to return profits to the owners in the form of dividends. This would better align the c-suite and "owners" in a sustainable, cashflow based relationship, much closer to the LLC model. It would also make stock ownership more attractive for poor people, since the income would be taxed at a lower rate for them than for rich people.
Qub3d 10y ago
I can at least answer the last question. "Pass-through" refers primarily to taxation. An LLC tries to combine the benefits of Corporations and Companies. The Company benefit is that any income is effectively the owners' income: it passes through the company to the owners, who then file taxes on the income as if it was a paycheck. This is the "pass through" idea; that income (and taxation) is passed directly to the owners. The corporate benefit is what gives LLCs their name. In cases of litigation, even though the revenue stream is passed to the owners, it is the business that is sued as an entity. This then "limits" the liability of the business owner.

by vram22 10y ago

carsongross 10y ago

A distribution is the paying out of profits to owners of a business. Distributions must be paid in proportion to ownership share: if you own 50% of a company you must be paid exactly 50% of all distributions. Distributions are not subject to payroll tax, which is a nice benefit of them. Pass-through entities mean that the tax liability for the entity "passes through" to the owners of the company, so the company proper does not have a tax liability, rather the owners do. When I am God Emperor, all company dividends will be deductible against corporate taxes, to encourage companies to return profits to the owners in the form of dividends. This would better align the c-suite and "owners" in a sustainable, cashflow based relationship, much closer to the LLC model. It would also make stock ownership more attractive for poor people, since the income would be taxed at a lower rate for them than for rich people.

Qub3d 10y ago

I can at least answer the last question. "Pass-through" refers primarily to taxation. An LLC tries to combine the benefits of Corporations and Companies. The Company benefit is that any income is effectively the owners' income: it passes through the company to the owners, who then file taxes on the income as if it was a paycheck. This is the "pass through" idea; that income (and taxation) is passed directly to the owners. The corporate benefit is what gives LLCs their name. In cases of litigation, even though the revenue stream is passed to the owners, it is the business that is sued as an entity. This then "limits" the liability of the business owner.