Love of Money: meaning and benefits of tax

What is Love Money?

Born in the United States in the 1960s, Love Money is made up of the amount that results from the investment of relatives (friends, family, entourage, etc.) in a business creator’s project. This amount, compared to relational savings, can vary from a few hundred to a few thousand euros.

The amounts brought in at the startup can be in the form of a donation or a loan between individuals. They come with favorable payment terms.

Reminder: each parent can donate up to 100,000 euros per child without paying gift tax. This allowance can be applied once or several times every 15 years. The allowance for donations given by grandchildren is limited to 31,865 euros (5,310 euros for grandchildren).

Contributions may also be made in the form of company equity participation. Investors become shareholders of the company (SARL, SAS or SA, etc.) in the appropriate proportion of their contributions.

The amount of these contributions as well as the name of the shareholders should be announced, preferably within the framework of a shareholders ’agreement. If the activity does not disappear and generates losses, the investor may lose his initial investment.

The tax advantage for investors

Investing in Love Money, in the capital of a relative who created his company, gives shareholders a certain number of rights, including the receipt of dividends if the activity becomes profitable. They can also give from time to time their opinions on startup management.

In return for the amounts invested in the company’s capital, they can benefit from an income tax deduction equal to 25% of the amounts invested as long as they meet certain conditions:

  • The subscription (in cash) must be related to an unlisted company.
  • Shareholders have promised to keep all their shares for at least 5 years.

This tax reduction is equivalent to 18% of the amount of payments made by the taxpayer within a ceiling of 50,000 euros for a person or 100,000 euros for a couple subject to joint tax.

The reduction obtained is included in the calculation of the cap on tax loopholes of 10,000 euros / year.

To note: the fee fraction that exceeds these limits may provide you with a tax deduction for the next 4 years.

If the subscriber’s contributions are paid before 5 years, the units or shares that justify the tax deduction for the capital subscription of SMEs will be refunded to the tax authorities.

If the securities are resold, any gain is subject to capital gain on the sale, through a flat-rate deduction (PFU) at the rate of 30%, or a progressive income tax rate if this option is more favorable. to the taxpayer.

If the business creator has no relatives who are likely to spend on him, he can use a crowdfunding platform.

Advantages and disadvantages of Love Money

For the investor, the primary interest of Love Money is to give a loved one a chance by funding their business project. Possibly, the promise of profit is only secondary.

For the creator, these contributions are beneficial because their cost is small and they are easily mobilized. The entirety of this equity can be used to seek additional financing from a bank where it provides serious guarantees.

In both cases, the main drawback of this formula is the possible opposition of the creator and some of his relatives if the project fails. A trap avoided by crowdfunding and its anonymous funding.

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