By: Dr. Tamara Patzer
In brief: Most founders hold nearly everything in one private company, and four events turn that paper value into money: an IPO, a sale, a recapitalization or a secondary sale. This explainer defines each in plain terms, shows why a founder who feels cash-poor can still be in the top 1%, and sets out what a New Orleans tax attorney says to settle before the first offer.
A founder can build a company worth tens of millions and still check the bank balance before buying a truck. That is not a contradiction. It is how private company wealth works. Todd M. Villarrubia, a New Orleans tax and estate attorney, spends part of the first chapter of his book, Entrepreneurial B.E.A.S.T. Mode™, on four terms that decide when that paper wealth becomes money: IPO, sale, recapitalization and secondary. Here is what each one means and why the order of operations matters.
Why do so many founders feel cash-poor?
Because the money is inside the company. The U.S. Small Business Administration counts 36,207,130 small businesses in the United States, and together they employ 62.3 million people, or 45.9 percent of private-sector workers1. Behind each of those numbers is an owner whose largest asset is a single company that cannot be sold in an afternoon.
Villarrubia describes the result in one line: “Most of their balance sheet is illiquid and concentrated in a single asset: their company.” A founder can look wealthy on a valuation and still run lean on cash, because the value is real only at the moment someone pays for it.
The feeling is common even above the national averages. Charles Schwab’s 2025 Modern Wealth Survey found that Americans, on average, say it takes $2.3 million to be wealthy and $839,000 to be financially comfortable2. A founder near either figure on paper, with all of it in one firm, often feels the opposite of rich.
What is an IPO, in plain terms?
An initial public offering is the first time a private company sells shares to the public. The company becomes publicly traded, and the founder’s shares can eventually be sold on an open market, though rules often limit how fast. For a founder, an IPO turns a private valuation into a daily price. It is the rarest of the four events, and the one with the most paperwork and the most public scrutiny.
What counts as a sale?
A sale, often called an M&A event, happens when another company or investor buys the business, either all of it or a part. This is the event most owners picture. It usually produces the largest single tax year of the owner’s life. If the shares were held more than one year, the gain may be taxed as a long-term gain at 0, 15 or 20 percent, depending on income, according to the IRS3. For 2025, the 20 percent rate started above $533,400 of taxable income for single filers3.
That one year can also lift a founder into the highest-earning tier. For tax year 2023, about $676,000 of adjusted gross income was enough to reach it, according to the Tax Foundation4. A founder who sells in a given year may be in the group for twelve months and out of it the year after.
What is a recapitalization?
A recapitalization, or recap, changes the mix of debt and equity in the company. A common form uses new borrowing to buy out some existing owners or to give the founder cash while the founder keeps running the business. It is a way to take some money off the table without selling the company.
It also changes the company’s risk. A business with more debt has less room for a bad year. Villarrubia’s book treats a recap as a planning event, not only a financing one, because the same transaction touches tax, family ownership and who controls the company.
What is a secondary sale?
A secondary sale is when existing shareholders sell some of their shares to a private buyer, instead of the company issuing new ones. The founder gets cash, the company does not receive any, and ownership shifts. It is often used when an owner wants partial liquidity without a full exit.
Each of the four events moves value from the company to a person, and each triggers different tax and legal consequences. That is why Villarrubia insists they be studied before they happen.
When should planning for these events begin?
Earlier than most founders expect. His book argues that families who keep wealth decide what they want years ahead: “The most astute families don’t wait for a letter of intent; they engineer the outcome they want five to ten years before an exit.” He adds, “Advanced planning doesn’t begin at exit; it begins years before opportunity knocks.”
What gets settled in that window is practical: how the company is held, who owns what, how family members are treated and which advisers will work as a team. Many protective steps lose their value once a claim, a sale agreement or a death has already occurred.
What should an executive do the week an offer arrives?
Call the advisers together before replying. Ask the attorney which documents govern the company, ask the tax professional what the structure of the deal would mean for the year, and ask the financial adviser how the proceeds would be held. Do not let the buyer’s timetable become yours. A short, calm pause to gather the team is normal in a serious negotiation, and it usually produces a better answer than a rushed one.
Common questions
Which event is best for a founder? None is best in general. The right one depends on the owner’s goals, the company’s condition, the tax picture and the family. That is a decision for the owner with a licensed attorney and a tax professional.
Is a recap the same as a sale? No. In a recap, the founder usually keeps ownership and control, and in a sale ownership passes to a buyer.
Does selling make me one of the top earners? For that year, possibly. Whether the status lasts depends on what happens to the money afterward.
Who should be in the room? Villarrubia’s book describes a team in which taxes, law, investments, insurance and business strategy are each covered by a specialist who talks to the others. The aim is that no adviser makes a move that undoes another’s work.
Sources
- U.S. Small Business Administration, Office of Advocacy, Frequently Asked Questions About Small Businesses 2026
- Charles Schwab, 2025 Modern Wealth Survey (Business Wire)
- Internal Revenue Service, Topic no. 409, Capital Gains and Losses
- Tax Foundation, Who Pays Federal Income Taxes? Tax Year 2023
About the author. Dr. Tamara Patzer is a publisher and former newspaper editor. She was on the staff of The Charlotte Sun when it was named a 2005 Pulitzer Prize finalist for its Hurricane Charley coverage.
About the source. Todd M. Villarrubia is an attorney with an LL.M. in Taxation and a Juris Doctorate. He is an Accredited Estate Planner, a Board Certified Expert in Estate Planning and Administration, and a Fiduciary Investment Advisor Representative. He is the author of Entrepreneurial B.E.A.S.T. Mode™. Wealth Planning Law Group, 101 W. Robert E. Lee Blvd., Ste 404, New Orleans, LA 70124. Phone: 504-982-8207; email: todd@lawealthplan.com; website: https://lawealthplan.com/?utm_source=newsanchored&utm_medium=ceo-weekly&utm_campaign=top-1pct
Disclaimer: Sponsored feature written on behalf of Todd M. Villarrubia. This article is general information, not legal or tax advice, and reading it does not create an attorney-client relationship. Results vary.
