30.9.14: Archived- Tax Efficiency

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Abstract

Within limits (i.e., assuming plausible economic substance controls), profits and losses can be adjusted to suit the tax situations of the parties. Certainly, service providers need not soak up tax-deductible losses since their capital is not at risk. And, basic "Tax Planning 101" tells us that interest deductions shelter profits; accordingly, causing the lion's share of the investment to be expressed as debt may be preferable if the venture is incorporated. Dividends are largely tax free to the corporate recipient in most circumstances so corporate venturers in incorporated ventures, should invest in equities-say, convertible preferred; let the tax exempt partners hold the debt (assuming they can avoid unrelated business taxable income). If a partner is providing only services, use the partnership form and give the service partner its upside in the form of a carried interest in profits-not currently taxable. The foregoing are the plain vanilla aspects of creative