If a person says they are worth $10 billion but they own a US company that is privately held, (making it a pass-through entity) and that company owes $20 billion, how is that person allowed to say they are a billionaire? Thank you. Btw: this is an ACCOUNTING question, not a POLITICS question.
In: Economics
A company can be a pass-through entity and still expose its owners only to limited liability (for what it’s worth, a company can also be privately held without being a pass-through entity). Something like an LLC allows the owner to treat the profits of the company solely as personal income (so they don’t also have to pay any corporate taxes on it), but they’re still protected against creditors if the company declares bankruptcy. This system works fine so long as you can ensure that the owner is only directing *profits* towards themselves and not generating a bunch of debt for the company by declaring all its revenue to be profits.
That said, usually when someone is “worth $10 billion,” or some similarly large number, it’s because they have an ownership stake in a large company, not because they have a lot of personal money just sitting in a bank somewhere. If the long run net value of that company is actually -$20 billion, then they are lying. More likely is that the company indeed has $20 billion in debts, but its assets and/or projected future revenues are even higher, so its net value is positive.
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