Let’s say an eccentric billionaire decided to donate $1 billion every year to Company A because he liked Company A and disliked its competitors and wanted to see Company A drive its competitors out of business.
This is a donation, no strings attached, nothing acquired in return. The billionaire has no actual ties to Company A; he isn’t an investor, holds no stock, isn’t on the board of directors, isn’t an employer or employee; doesn’t even buy their products. He just likes Company A. Company A has never asked for such donations or asked for this man’s money.
Would this be legal - to donate money to a corporation or business, and especially for the purpose of giving them an advantage over their competitors?
Is it legal? I think it probably is. There are a wide range of crazy hypotheticals proposed on the SDMB (cite: SDMB Message Board) that nobody has ever thought of or cared enough about to create legislation that covers it.
The billionaire would have paid individual taxes on the money, whatever they might be. The corporation would also have to pay taxes on the money. An interesting part of the question is “How does the chief accountant for the corporation deal with the donation?” Obviously he debits the Cash account. Which account does he credit? It has to be something in Equity. It really should not increase Income, should it? Note: I did very poorly in my Accounting classes.
When an owner or angel investor transfers money to a company, which is very common during a start-up phase, it is typically done either as a loan or sale of stock, I believe.
This is something I’ve actually thought of. Like Bill Gates pays Robinson Cano’s salary, to enable the Mariners to beat out the Yankees for the American League championship.
Now, if, the billionaire tried to subsidize the company in a more indirect way - for instance, buying yachts from a yacht-manufacturing company for $50 million apiece when such yachts normally would normally sell for just $10 million - would that be more legal or less legal than simply just handing over a donation of a huge chunk of money?
I would have thought that the company could put the cash in their account as a zero interest loan. Then I thought that it would leave the donor with a future tax problem as the money is his asset still.
I remember a similar problem on a much smaller scale, when I (as a manager) was given a refund of several hundred pounds in cash for some overpaid postage. The accounts department really hated it.
Fascinating hypothetical; because couldn’t the corporation, then, at its own discretion (of course!) choose to donate that money to a political candidate’s campaign fund?
The credit would be to Donations, in Revenue. If the entire amount was donated as a one-time cash gift, it would be income in the year it was received.