If non cash rich billionaires have to sell stocks to pay taxes how do they stay in control of their companies?

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If non cash rich billionaires have to sell stocks to pay taxes how do they stay in control of their companies?

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Anonymous 0 Comments

They usually avoid selling and take loans on the shares. Or strategically sell them. Like when Elon was selling in December he was exercising options at the same time.

Anonymous 0 Comments

You pay taxes on income, not wealth. Tax the rich only works if they take a salary or sell stocks.

Anonymous 0 Comments

The simple answer is they don’t sell stocks. The rich man’s game is to be cash poor and asset rich. That way, there are hardly any taxes to pay in the first place.

Anonymous 0 Comments

Firstly most billionares do not pay taxes. Only income is taxed and as long as they do not have any income on paper they do not pay taxes. It does not mean that they are not able to enjoy their wealth but it is done through various ways which does not involve any income.

One common way to raise cash without selling stock is to take up loans using the stock as security. If they default on the loan the bank will get the stock. So on paper they will be in massive debt. This does allow them raise funds for things like luxury trips and even the little taxes they might pay. This is by the way how Musk just got the money to buy Twitter.

But even considering this there are valid reasons for parting way with stock in a company. One common way is to raise funds for the company to expand. So it is not that uncommon for a “founder and CEO” to own less then 10% of their company. But as long as the other investors have faith in them and trusts them they can retain control over the company. However there have been situations where people have lost control over their own company. Most public was when Steve Jobs was fired from Apple by the other investors, he did eventually get hired again after a few years though.

Anonymous 0 Comments

What I cannot for the life of me understand is how can someone be bankrupt and at the same time a billionaire?

Anonymous 0 Comments

Sometimes there are different classes of stock. Class A shares, for example, may have 10 times the voting power of the Class B shares but the same economic rights (equal dividends). I think this was the case with Google before it became Alphabet.

Basically the “owner” can retain control but still have their pro data economic interest.

Anonymous 0 Comments

I didn’t see this mentioned, but they sell other stocks they own. They don’t only own one stock. While they might have a controlling interest in one company they own many other stocks. So on top of doing things like taking out loans against the stock of the company they have a controlling interest in, they can also sell other stocks for companies they don’t have a controlling interest in.

Anonymous 0 Comments

Income is taxed, not assets. If you earn $1M in income, you might pay $300k of that income in taxes leaving you with $700k of net income. So there’s usually no need to sell off stocks to pay taxes. Additionally, they usually only sell off a small portion of their stocks, which doesn’t really endanger their control of the company.

Anonymous 0 Comments

Almost none of the billionaire company founders hold 50% of their company shares… between co-founders, VC investors early on, shares sold in IPO, founders may remain the largest single shareholder but rarely have anything close to a majority of shares in their company.

However, they don’t pay taxes on shares they still own. Part of the reason billionaires pay so little tax relative to normal people is that they are only taxes on capital gains, when they sell shares.

Most company-founder billionaire types can just sell a tiny fraction of their shares to fund living expenses, without reducing their holdings too much. If somebody’s worth $5B and sells off $50M of shares, that’s 1% of their shares.

But many wealthy just borrow from lines of credit against their shares, delaying any sort of share dilution or tax implications.

Anonymous 0 Comments

So I’m going to explain to you how to do this with real numbers. As some others have said you use loans and pay **almost** no tax.

Let’s say I start a company. Things go well and we go public. I now own 25% of the stock worth 50 billion. 25% is **more** than enough for me to stay in control, so I sell 10 billion in stock. This lets me keep 40 billion or 20% again this is more than enough for me to stay in control. I have to pay 20% capital gains on the 10 billion I sold, so 2 billion. I now have 8 billion in cash.

Now forget about the 40 billion I have in the company it’s not important. All it does is let me retain control. The 8 billion is what matters. I invest this 8 billion is a diversified portfolio. I then get a loan on this 8 billion for about 30% of it so 2.5 billion for a stupid low interest rate. Zuckerberg apparently got about 0.5% when he did this. 0.5% on 2.5 billion is 12.5 million a year. Let’s say I’m 35 if I want to spend 1 million a week 2.5 billion will last me 48 years. or until I’m 83. How do I pay the interest? Well my 8 billion is still there. Making about 3% a year. 3% of 8 billion is 240 million. Every year I sell 15.7 million of that 8 billion+ pay 3.2 million in tax and use the rest to pay off the interest on the loan. So ignoring the 40 billion in my company I “make” 240 million a year and get taxed 3.2 million. That’s a tax rate of 1.3% At 83 my 240 million a year will be well over 20 billion, So I just take out a new loan that covers me till I die. When I die the base points reset my kids pay off the loans with 0 tax owed, they actually get a deduction on the inheritance tax for repaying the loan. Rinse repeat.