I have a question regarding the first year taxes on a firm taking venture capital funding under two possible scenarios.
One scenario involves the investing firm taking a percentage of ownership and the second involves them taking royalties on prroducts sold.
Does the receiving firm pay tax on this new money they received the first year after they receive it in either scenario?
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No it’s equity not income.
Unless you’re talking about the original investor taking some cash off the table, then yeah there can be capital gains.
I thought maybe there might be capital gain in this situation as one partner bought another out and is now selling some equity at a higher price than he bought it for. Not the case?
yeah in my comment I noted there would be capital gains if someone is receiving cash for their shares. Typically in a venture model there is little sell-down of shares, as most cash is going onto the balance sheet. And it would be on the shareholder, not the firm, to pay the tax.
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