Ask HN: My startup has concealed from me that it raised funding. What to do? • Hacker News Board

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#111

Post by limeyx » Sat, Mar 07, 2015, 12:31 AM UTC

davidu wrote: post #105

emcrazyone wrote: post #96

Earlier quoted context omitted.

he can't pay income tax if he's never received the income. "I will be left with a tax bill on $10,000s of additional "income" that I never received"

Actually, and unfortunately, in the US, that's how it works. His paper gains are taxed. It's not quite "income" but it's taxed that way.

That actually depends on if the options were ISO's (where you'd only have to account for the spread in AMT calculations) or non-Quals where yes you'd have to pay regular tax on the spread at exercise time.

If he's really a founding engineer though he should have filed an IRS 83B election and basically paid close to zero tax on all this

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#112

Post by limeyx » Sat, Mar 07, 2015, 12:35 AM UTC

davidu wrote: post #88

bowline_nc wrote: post #25

You shouldn't be in bad shape tax-wise. I don't know Canadian tax law - but in the US, you only get taxed when you sell the shares. Capital gains would not be recognized if you exercised the options and held onto the shares. Since you have been exercising your options - you are a shareholder in the company (or a member depending on the structure) and I would imagine that the company's operating agreement would requir…

"but in the US, you only get taxed when you sell the shares. Capital gains would not be recognized if you exercised the options and held onto the shares." In the US this is a completely false statement. As the FMV increases of your exercised options, you are responsible for paying taxes at the /time of exercise/ between the strike price and the FMV of that stock. Once you pay those taxes, you do not need to continue…

Thats only true for non-qualified options.

ISO's were specifically designed to get around this issue (but you may still get hit w/AMT on the spread)

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#113

Post by davidu » Sat, Mar 07, 2015, 2:05 AM UTC

limeyx wrote: post #111

davidu wrote: post #105

Earlier quoted context omitted.

Actually, and unfortunately, in the US, that's how it works. His paper gains are taxed. It's not quite "income" but it's taxed that way.

That actually depends on if the options were ISO's (where you'd only have to account for the spread in AMT calculations) or non-Quals where yes you'd have to pay regular tax on the spread at exercise time. If he's really a founding engineer though he should have filed an IRS 83B election and basically paid close to zero tax on all this

Correct.

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#114

Post by somberi » Sat, Mar 07, 2015, 3:17 AM UTC

This is my personal experience. So take it as a sample of one.

A CTO, a decade younger to me, sought my advice on a similar situation - Founder-CEO divvied up equity in new and unfair ways without telling the CTO. The CTO wanted to raise hell, and take his loyal team members with him and basically handicap the company.

I advised him against doing this.

My view is - Even an unfair portion can mean real (but reduced) value, only if the company succeeds. And to that end, a rational angle will be to not act in a way, that damages value.

I told him to let his displeasure be known and leave but with his calm intact. And whatever, he had to do, meditate, jog, or whatever, to bring a calm mind to the table, he should do it.

He resigned, told the team that he built, that his initial pitch about the company doing interesting things are still true (which he truly believed), but he was leaving.

Fast forward a year and half, the company got sold for two-digits (Million USD), and he got a handsome payout, and the founders apologized.

He still wonders if the outcome would have been the same if he had acted in a way that damages the company.

Your first responsibility is to your peace and calm. Abstract yourself out of the deal, a business deal at that. Not worth your angst.

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#115

Post by alain94040 » Sat, Mar 07, 2015, 5:23 AM UTC

It seems that you are over-reacting. Ask nicely for a clarification about exactly what form that first investment took. if, as others pointed out, it was a convertible note, the stock price may not be impacted.

The fact that the company lawyer gave you the stock price indicates that they are not lying to you. So your taxes are probably fine. The only thing questionable is whether they should have given you the raise they promised in writing upon raising funding. If the amount they raised is small, I can see how the founders would think it's too low to trigger the raise.

So overall, everything may just be fine. By the way, you are not a co-founder, you are the first employee.

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#116

Post by appleflaxen » Sat, Mar 07, 2015, 5:43 PM UTC

CPLX wrote: post #34

Well despite the fact that this is very stressful, I would start with the maxim that one should employ Hanlon's Razor[0] and not ascribe to malice what can adequately be explained by stupidity. It's quite possible, nee probable, that they are just disorganized and genuinely thought you already knew, or that it didn't matter, or otherwise were clueless or inexperienced enough to not really understand what had happened…

"quite possible, nee probable, that"

vs

"...quite possible, nay, probable, that"

I always thought it was the latter. Are these the same? i don't think so, but i'm not great with language rules.

Re: Ask HN: My startup has concealed from me that it raised funding. What to do?

#117

Post by dragonwriter » Sat, Mar 07, 2015, 5:46 PM UTC

appleflaxen wrote: post #116

CPLX wrote: post #34

Well despite the fact that this is very stressful, I would start with the maxim that one should employ Hanlon's Razor[0] and not ascribe to malice what can adequately be explained by stupidity. It's quite possible, nee probable, that they are just disorganized and genuinely thought you already knew, or that it didn't matter, or otherwise were clueless or inexperienced enough to not really understand what had happened…

"quite possible, nee probable, that" vs "...quite possible, nay, probable, that" I always thought it was the latter. Are these the same? i don't think so, but i'm not great with language rules.

No, "nee" is a French import meaning "born" used to introduce someone's birth name when it differs from their current name (and, sometimes, by analogy, to introduce the original name of a product, etc., when it differs from the current name.)

"nay" was the word that was almost certainly intended in GP.