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If he has no intention of selling or going public why would it matter? Even if he was giving out equity it would have no value since there aren't going to be an

If he has no intention of selling or going public why would it matter? Even if he was giving out equity it would have no value since there aren't going to be any liquidation events. To me it would be more of a red flag if he was giving away equity because he would be giving something that he knows will never have any value.

pc86 9y ago
Equity determines distributions, it's not like it's worth nothing until a liquidation event.
- cardine 9y ago
  This may be different in Canada, but in the US if a company is owned 100% it makes more sense to have it taxed as an S Corp. In that case all "distributions" are salary that is taxed as ordinary income. This is done because even though the income tax rate is high, it is lower than getting double taxed (paying corporate tax rates plus playing capital gains). So generally if a company is owned 100% by one person there are no distributions. This means for a company like this equity has virtually no value and profit sharing is a far better deal for everyone involved.
rsynnott 9y ago
Some private companies distribute equity to employees; it pays dividends and sometimes gives voting rights. Taken to an extreme, this can result in the company becoming a cooperative.
mark212 9y ago
it sounds like this company actually has ongoing profits, which means the shares do have value even without a liquidation event. Even closely-held small firms with little turnover can be valued (e.g., partnership buy-outs, unexpected death of a key shareholder, divorce).
- cardine 9y ago
  > partnership buy-outs, unexpected death of a key shareholder, divorce Since this company is 100% owned by Rodrigues, all of those events would require Rodrigues to decide to sell, or for him to die and for his heir(s) to decide to sell - all things that I would classify as liquidation events. Maybe I am miscategorizing his viewpoints, but the article implied that Rodrigues doesn't plan on selling Soti. So unless you are expecting Rodrigues to die soon I'm not sure what path exists for any other theoretical equity holders to gain any value from their equity.
  - mark212 9y ago
    A minority shareholder can force a liquidity event. For example, the founder gives 5% to a valued employee who after vesting and several years of company growth gets a divorce. Husband wants his 50% community property interest in those shares and the employee minority shareholder doesn't have enough cash. Court forces a sale. Alternatively, employee pledges the shares as security for a loan and then defaults. Lender forecloses. My point is this: there are ways for a minority shareholder to force a liquidity over the objections of the majority shareholders. Therefore those shares have value.

pc86 9y ago

Equity determines distributions, it's not like it's worth nothing until a liquidation event.

cardine 9y ago
This may be different in Canada, but in the US if a company is owned 100% it makes more sense to have it taxed as an S Corp. In that case all "distributions" are salary that is taxed as ordinary income. This is done because even though the income tax rate is high, it is lower than getting double taxed (paying corporate tax rates plus playing capital gains). So generally if a company is owned 100% by one person there are no distributions. This means for a company like this equity has virtually no value and profit sharing is a far better deal for everyone involved.

rsynnott 9y ago

Some private companies distribute equity to employees; it pays dividends and sometimes gives voting rights. Taken to an extreme, this can result in the company becoming a cooperative.

mark212 9y ago

it sounds like this company actually has ongoing profits, which means the shares do have value even without a liquidation event. Even closely-held small firms with little turnover can be valued (e.g., partnership buy-outs, unexpected death of a key shareholder, divorce).

cardine 9y ago
> partnership buy-outs, unexpected death of a key shareholder, divorce Since this company is 100% owned by Rodrigues, all of those events would require Rodrigues to decide to sell, or for him to die and for his heir(s) to decide to sell - all things that I would classify as liquidation events. Maybe I am miscategorizing his viewpoints, but the article implied that Rodrigues doesn't plan on selling Soti. So unless you are expecting Rodrigues to die soon I'm not sure what path exists for any other theoretical equity holders to gain any value from their equity.
- mark212 9y ago
  A minority shareholder can force a liquidity event. For example, the founder gives 5% to a valued employee who after vesting and several years of company growth gets a divorce. Husband wants his 50% community property interest in those shares and the employee minority shareholder doesn't have enough cash. Court forces a sale. Alternatively, employee pledges the shares as security for a loan and then defaults. Lender forecloses. My point is this: there are ways for a minority shareholder to force a liquidity over the objections of the majority shareholders. Therefore those shares have value.