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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They stay in control as a business executive (CEO, president, etc.) Also they retained plenty of shares of stock so they also have input as a shareholder.
You could avoid selling by taking out a loan against your shares to pay taxes
Also you can have “preferred” shares which are worth the same as regular shares in terms of ownership of the company, but can decide those shares get to vote (for instance) 1000 times each in order to maintain voting control of the company even if you own fewer than 50% of the outstanding shares.
Lots of different ways:
* Many companies have different classes of shares (voting and non-voting). So a founder can sell off non-voting shares and still have majority voting control.
* They also don’t need to own >50% of the company to be calling the shots. The important part is that no one has more shares than them. A lot of founders (Gates, Jobs, others) have/had single digit ownership in their own companies while being firmly in control.
* They can sell shares of other companies they own, or pay taxes using other cash, or just borrow money (using their shares as collateral).
You only have to pay taxes if you make income, for example from selling stock. If you just never sell, then you don’t make any income from those stocks, so you don’t have any taxes to pay. You might have some other income from dividends or salaries that don’t require you to sell shares. Since this income is just cash, you just reserve a portion of that cash to pay taxes.
Unrealized capital gains are untaxed*, meaning that the profit is only taxed when they sell stock. Any stock sells they perform will be planned with taxes in mind, and for day-to-day expenses they will either have enough money saved** or take loans against the shares at low interest rates.
Many will have taxes due from dividends even if they do not sell stock, however the dividends are typically paid in cash and the tax rate is always less than 100%.
Many others are employed by the companies they own, often in an executive position or on the board of directors. For these positions, they will often be paid a salary*** and bonuses, which are nearly always taxed. The bonuses are often paid in stock, which may require they sell some stock to cover the taxes, however the amount they are required to sell for taxes will be less than what they gained.
* I am not aware of any jurisdictions that tax them, but there are a lot of jurisdictions in the world, and it would not surprise me if there is an exception.
** “Cash poor” may still mean hundreds of thousands in cash or extremely liquid assets.
*** A lot will arrange a formal salary of $1/year – just enough to be able to legally be an employee for tax reasons, both for the company and the employee. The vast majority of their compensation generally comes from stock options and performance bonuses.
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