Problem: Early-stage startups lack cash to compensate advisors or employees. These startups frequently compensate with stock in-lieu of salary. As a C Corporation, it is difficult to avoid triggering a taxable event when compensating with stock. This is particularly problematic when the stock is an illiquid asset.
Solution: Defer taxes on all stock-in-lieu-of salary transactions (whether gift or granting of options) until the stock is sold, or the company is acquired.
This would make it easier for early-stage companies to compensate talent, without causing expensive tax complications for that talent.
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