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Consider the following situation: I provide consultancy services which saves the client a very significant sum of money while also generating significant cash flow.

I plan to charge him $2 million as compensation for my services. I also have a plan to launch a startup. My client is also wanting to jump on board and is willing to provide this $2 million as venture capital in return for a minority stake. Is it okay to accept compensation in the form of venture capital? Further can I continue to do this for as long as I want? Will this be considered a form of tax evasion?

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  • This seems like an accounting question, not a law question. It's not entirely clearly what you're asking.
    – cnst
    Oct 28, 2020 at 3:56
  • So, you are considering not billing him the $2 million he owes you but instead having him invest in your company? Feb 25, 2021 at 2:21

2 Answers 2

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Is it okay to accept compensation in the form of venture capital?

So long as you are an independent contractor you can accept payment however you like. Employees, however, must be paid in cash in most jurisdictions.

Further can I continue to do this for as long as I want?

Sure.

Will this be considered a form of tax evasion?

Only if you don’t pay your taxes. You received $2 million in value for your services so you owe whatever income, sales and value added taxes etc. that are applicable. It doesn’t matter if you paid in cash or cowrie shells.

However, I’m not sure you’re getting paid at all. You are selling a minority stake in your company for $2 million. What are you getting paid for your services? Just take the money, invest yourself and have no annoying minority partner.

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  • Then he is taxed on the money. Feb 25, 2021 at 2:22
  • Right, because in the scenario where it's in the form of an investment, the OP is not actually being paid. They're acquiring a stake in the OP's company, for which they will expect appropriate compensation later (as with any investor in a company). I can't imagine taking the same amount of money you would just be paid as an investment instead being a good idea. It surely makes more sense to just keep the cash, pay the taxes, and invest it yourself, as Dale suggested. Any scenario where it's a better deal for the OP to have the money as an investment is probably tax evasion.
    – Ryan M
    Feb 25, 2021 at 3:31
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    Depends on what that minority stake is worth. Dale, I'll happily sell you half of my company for $2 million :-)
    – gnasher729
    Mar 22, 2022 at 10:53
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If you call it/think of it as remuneration (as in your question) you are going to owe taxes and maybe worse. If you waive the fee and completely unrelated that client makes a bona fides investment in a real startup and gets stock in the start up that legitimately has a vale of $2m and the startup doesn't spend it all paying you to do nothing then this might pass muster.

If your intentions are scam-y, that matters.

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