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Like say, X company, where the CEO is already a billionaire while his company has lost many billions of dollars in the course of several years?

  1. Do you need investment from someone else to do this?
  2. If you start your own LLC(limited liability company), then presuming you are not liable for your company's losses, can you make any amount your salary?
Guest
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  • Tax optimialisation. You spend (loose) money to pay less taxes and therefore have more money. – SZCZERZO KŁY Dec 14 '20 at 09:00
  • @SZCZERZOKŁY Not sure if your answer is tongue in cheek, but spending $1 to save $0.45 in taxes still nets you a loss of $.55. On the contrary, incurring losses in a corporation but earning a higher personal salary likely creates expenses for you in a relatively lower tax rate, and earns you income at a relatively higher personal rate, so in general this is not what's going on. – Grade 'Eh' Bacon Dec 14 '20 at 20:16
  • @Grade'Eh'Bacon I will use IRL example. A landlord must pay taxes on his income from real estate. He can calculate what he own to the cent or pay fine. OR he can invest in those places (renovation, new furniture etc) and be extemp. With the assumption the money invested comes from renting. But it don't need to. So you can invest money earned by himself. Get tax extempt and at the same time lower his own taxes because his income lowered because he spend money on renovation. One money shown in two places lower tax liability. You can then put that money in some obligation that arent taxed for 3y – SZCZERZO KŁY Dec 15 '20 at 08:51
  • @SZCZERZOKŁY Your new example is also wrong. Earn $1000 from renting. Option 1: do nothing, pay let's say $400 in tax, leaving you with $600 net income. Option 2: incur an extra let's say $300 in expenses, leaving you with $700 pre-tax income, and at the same 40% tax rate, that would mean $280 in taxes paid, leaves you with $420 in net income. Of course, buying furniture or renovation isn't probably an immediate deduction anyway, so the tax benefit is even less. – Grade 'Eh' Bacon Dec 15 '20 at 13:39

2 Answers2

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In theory, sure, you could start a company, convince a bunch of investors to put in a large amount of cash, and use those invested funds to pay the CEO a large salary while the company loses money. As a practical matter, however, it is pretty unlikely. If you're running a business that requires investors to put in money, it is very unlikely that those investors want large amounts of that money flowing out in salary to the CEO. It is very, very unlikely that they'd happily invest in a company paying a billionaire CEO a large cash salary.

More likely, when you hear about startup CEOs making a large amount of money, what people are talking about is the appreciation of the CEOs stock and options. If the CEO owns, say, 10% of the shares of the company and the company's value increases from $1 billion to $2 billion, someone might report that the CEO made $100 million because his stock position appreciated from being worth $100 million to $200 million. That depends, of course, on the value that others place on the company but it is vastly easier for a startup's stock price to double than for that startup to pay out $100 million in cash to the CEO.

Justin Cave
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  • The only case where I heard of a company loosing really a LOT of money while the CEO got a lot was - We ;) THAT was a money dump. – TomTom Dec 14 '20 at 09:38
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You can make any amount your salary, but that won't magically cause money to appear out of nowhere. So yes, you would need investors if you can't pay your salary from revenue.

BrenBarn
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    OP could start a company tomorrow and pay themselves a billion dollars. The trick is getting that billion dollars. – JohnFx Dec 14 '20 at 17:02