Does anyone have experience with the tax and accounting treatment of Warrants and Convertible Notes to start-ups? I am trying to understand the best way to structure an agreement to optimize the situation below:
1) A start-up company wants consulting services performed, but does not have much cash. They are willing to give up equity if they are successful in raising a round of financing.
2) The start-up is willing to issue warrants or convertible notes for future equity. The future equity could either be granted via a warrant (at a discountedrate from the next funding round) or an amount of equity based on an agreed upon value of the services.
3) Ideallythe start-up does not want to have debt on the balance sheet (a concern that it will make them less attractive to a potential investor)... at the same time, the consultants do not want to pay taxes on the services performed.
Any help in trying understanding of the trade-offs of these (or other alternatives) is greatly appreciated.