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Parachute Payment

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Home Startup Terms Glossary Parachute Payment

What is a Parachute Payment?

If a change in ownership occurs in a startup, the startup will often make parachute payments to existing members of executive management. These payments are similar to severance packages since they generally provide a large lump sum payment to business executives upon their termination. The IRS limits the amount of parachute payments that can be made before an excise tax is levied against a startup.

Parachute Payment Examples

Key factors of parachute payments include:

  • Example 1. Paid to high-earning members of management
  • Example 2. Regulated by the IRS
  • Example 3. Change in management required

This web page also discusses the parachute payments and excise taxes.

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