The lifeline of every early-stage enterprise is the financial resources that will allow it to develop its intellectual property, increase its sales, and grow the business.
Financing may come as common or preferred stock equity, SAFE (Simple Agreement for Future Equity), convertible notes, shareholder loans, and financial institutions’ loans. There are important tax ramifications to remember for each of them.
Just because an instrument is called a loan or a stock, there is no guarantee that it will not be treated as something else by the tax rules with unintended consequences. The substance takes precedence over form. The vibrant tension between these two is a critical element of the entire U.S. tax paradigm that can be seen throughout various domains of the tax rules. Read more