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Why would you use equity? If you already own 100%, it won't change the equity %s, so what's the point? And it will create headaches in accounting like increas
by epi0Bauqu 18y ago
Why would you use equity? If you already own 100%, it won't change the equity %s, so what's the point? And it will create headaches in accounting like increasing the fair market value of your shares.
Just loan the corporation money on an ongoing basis as a loan, and then pay it back to yourself over time. The only thing you have to worry about here is that you need to pay yourself market rate interest or the IRS won't like it if you get audited. But you don't need to make it complicated by paying interest over time. Just add it up all at the end and pay yourself back in a lump sum.
- tptacek 18y agoI strongly disagree with the first part of your argument and strongly agree with the second part, for a totally different reason. First: your shares having a fair market value is a "win" condition. Before steady cash flow, even after the (unlikely) VC A-round, they don't really, no matter what you say. I wouldn't make practical decisions based on the eventual number attached to shares. Second: do the loan, don't buy more equity. What can happen is, a year from now, that loan gave you more equity than your partners. The money seemed like a big deal when you gave it it, but now that you're making $300,000 a month, nobody cares. Now there's friction over the fairness of the equity purchase you made. Not worth it.