Successful involvement of founders and employees

Case 1: Start-up - preliminary considerations  

1. facts of the case

ETH graduate A would like to turn his thesis into a use case and plans to found a start-up with his sister Sund and two friends B and C.

He still needs two employees to assist him with research, but fears that he will not yet be able to pay a high salary, especially in the start-up phase.

Question

• What are the options for incentivizing or compensating employees by means other than wages, and how are they taxed?

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Case 2: Foundation

1. facts of the case

A, S, B and C would like to found the Start-up AG with a share capital of CHF 100,000 and a premium of CHF 100,000. The following participation is envisaged: A: 80%, S: 10%, B and C 5% each.

Because A has no money, S initially subscribes for 90% of the shares. She does not work at the AG, but acts as a BoD.

Questions

• What do you recommend A do to qualify fiscally as a founder?
• Does S's participation qualify as employee participation?

B is still waiting for his bonus and can therefore only join after 6 months. C therefore subscribes 10% first and sells 5% to B after 6 months (for CHF 10'000).

Question

• Are the shares acquired by B founder shares?

A grants "founder options" to an employee M of the first hour, i.e. he can acquire shares in the start-up AG for the same price (share capital and premium) after 12 months of work for the start-up AG (via capital increase or from A).

Question

• Can M acquire founder's shares via founder's options?

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Case 3: Financing round

1. facts of the case

The start-up AG has found its first investor after 8 months and VC AG participates with 20% in the context of a capital increase.

VC AG subscribes to newly created share capital with a nominal value of CHF 25,000 and contributes a premium of CHF 100,000.

Question

• What are the tax implications of the funding round for property taxes?

C, who holds 5%, does not want to be fully diluted by the contribution from VC AG. He subscribes for additional share capital and premium of CHF 1,000 each, so that he now holds 4.7%.

Questions

• Explain the tax consequences for C. How could the tax consequences be avoided?
• How would the tax consequences change for C if he subscribes to the shares for CHF 1,000 and CHF 4,000 premium?

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Case 4: Economic start-up

1. facts of the case

Start-up AG is not doing well. The investor VC AG sells its shares to S(variant: to A) at the current net asset value of Start-up AG less 10% "liquidation discount".

Questions

• What are the tax consequences for S?
• Variant: What are the tax consequences for A?

After 6 months without business activity, Start-up AG acquires an app from Student X for CHF 20,000 and changes its corporate purpose.

X would like to be involved in the further development of the app. He not only wants to work part-time forStart-up AG, but also wants to use half of the purchase price for a share in Start-up AG. He buys 10% of the shares from A at the net asset value of Start-up AG.

Questions

• What are the tax consequences for A?
• Are the shares acquired by X founder shares?
• What to consider when selling the app at X?

Variant: Instead of acquiring the shares of A, X participates in Start-up AG by means of a capital increase to the extent of 9.09%.

Question

• Are these founders' shares?

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Case 5: Purchase price allocation

1. facts of the case

The start-up AG develops positively. 5 years after its foundation, all shares are bought by Alphabet AG for a price of CHF 900'000.

The shares are held before the sale as follows: S: 10%, A: 70%, B: 3%, C: 4%, X: 10%, M: 3%

Question

• What are the tax consequences of the sale for shareholders?

Variant: The partners have agreed among themselves that B and C, who still received a small wage in the initial period, will receive advance sales proceeds of 1% and then the remainder of the purchase price will be distributed proportionally.

Question

• Does this change anything in the assessment?

A commits himself to work as CEO of Start-up AG for another 3 years and is compensated with a salary of CHF 200'000(variant: CHF 50'000). After this period he receives an additional purchase price (earn out) of CHF 300,000 to CHF 500,000 (depending on the business development).

Question

• What are the tax consequences for A?

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Case 6: Death of a shareholder

1. facts of the case

The start-up AG is still held by the founders. 4 years after the foundation, the majority shareholder A (variant: B), who lives in the Canton of Zurich, suffers a fatal diving accident. The surviving widow inherits the shareholding in the start-up AG. Subsequently, the widow sells the shareholding to S, B and C.

Questions

• What are the tax consequences of A's death?
• What are the tax consequences of selling the investment in S?

Variant: The widow works with Start-up AG for one year and subsequently sells the shares to Alphabet AG together with the other shareholders.

Question

• Does this change anything in the assessment?

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Case 7: Exit of a founder

1. facts of the case

Since B is reorienting himself professionally, he sells his shareholding in Start-up AG after 2 years at the net asset value to A and C in equal parts.

Questions

• Are the shares sold by B still founder shares after the sale to A and C?
• Variant: How would the case be assessed if A, b and C had already agreed among themselves at the time of formation that a shareholder who is no longer employed by Start-up AG must sell half of his shares to each of the two remaining shareholders?