2.3.2.d: Note on Consideration for Issuance of Shares

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Abstract

(i) I.R.S. § 351 and Shares Issued for "Property" Section 351 of the Internal Revenue Code postpones gain or loss on the contribution of appreciated property to a corporation[1] in exchange for stock,[2] assuming certain rules are followed. Note that, although § 351 is thought of principally in connection with organization of unseasoned start-ups, in fact the issuer can be newly organized or preexisting when the stock issuance occurs; it can be any size, have an unlimited number of shareholders pre- and postfinancing and issue as many classes of stock as the situation warrants. The principle of postponing tax is not dependent on the resultant corporation being small or uncomplicated. The rule of § 351 is that, immediately after the financing, the investors who contribute property and/or cash in exchange for stock in the transaction are in control;[3] that is, they own at least 80% of the issuer's combined...