[gen220]

Can someone in-tune to this world explain why Moskovitz purchases equity through a trust, in the form of convertible promissory notes? It seems like he isn't taking any compensation in stock or cash, but prefers to "invest" in the company's stock, through this trust and promissory-note scheme?

If you're confident that the company's eventually going to exit (obviously a big "if"), and you have the cash liquidity (which he obviously does, as one of the original co-founders of fb), is this essentially a method of getting compensation that isn't taxed as compensation? I'm trying to understand what the justification is for maintaining what looks like a fairly complicated transaction. It looks like they've done it a few times (2017, 2020 jan 2020 june). His entities also participated as investors in the Asana Series D and Series E rounds.

Not meaning to cast aspersions, just curious because I haven't seen these kinds of setups in S-1's before. But most S-1 companies don't have people with pre-ipo, >1bn net worth founder-CEOs, so it makes sense that this one might be a bit anomalous.

[simonebrunozzi]

That's a fair question. I am not a lawyer or accountant or anything in that field, but I can try to answer anyway.

1) Often trusts and LLCs are used for liability protection and anonymity; you see this used by investors owning multiple residential real estate properties.

2) Your comment on tax is interesting; of course, capital gain in the US is taxed at 20% (plus your state), while income tax gets to roughly twice that. So, potentially, that could be a way to reduce how much taxes you will pay.

However, in relation to #2, I doubt that Moskovitz really cares to save 100k-200k a year in taxes. It's probably more about #1.

Again, this is my $0.02. Please correct me or improve my comment if you know the subject more than I do.

[dmoy]

Trust tax brackets are steep enough that income tax and cap gains benefits are negligible. Anything that could be done in a trust w.r.t. cap gains could also be done as an individual, so there's no win there.

Inheritance tax benefits might be substantial though.

You're probably very right about the liability and anonymity aspects.

[jhylau]

I believe these types of trusts (without knowledge of the exact trust setup) are to limit the inheritance tax when he dies, by having the trust own the shares at an early stage (lower valuation, lower inheritance tax). It can appreciate within the trust without accumulating additional inheritance tax on the appreciation. The downside is the trust owns the shares and he can't liquidate it for his own use, which he doesn't need to cos he's already rich enough.

[ccheever]

Since it isn't very anonymous and doesn't likely have any clear tax advantage, I think the mostly likely reason for the trust is just to avoid probate in California if he passes away. https://www.nolo.com/legal-encyclopedia/california-avoiding-....

[vechagup]

Indeed. It's quite common to move your assets to a living trust in California for this reason, even for the only somewhat wealthy. It's basically SOP to set up a trust rather than just a will if you have assets above the simplified probate threshold. (I'm sure Moskovitz, being more than somewhat wealthy, has additional reasons.)

[vmception]

Another thing trusts and convertibles can be used for are getting around transfer restrictions placed on the securities or owner

You can always swap out the trustee on a trust, giving full control without transferring title of the security

A lot of fun things you can do in the financial engineering space

edit: I’ve seen them done on employee shares/stock options, or on LLC membership interests, but in this case I could imagine being able to change ownership without reporting insider sales (likely not 100% compliant from the regulatory perspective but its likely never been challenged in court especially if nobody knows the trustee changed lol), or just easier asset management for inheritance purposes