Skip to main content

Law Office of Ronald David Greenberg

Home
Site Map
Notice; disclaimer
About the firm
Contact the firm
Member Login
Curriculum Vitae
Publications (with links)
Publications (by date)
Posts
U.S. Navy tour of duty
Selected photos
Business Lwyr comment
Securitization comment
Work in progress
Selected references
Selected editorships
Startup businesses
Safire letter comment
Verbal skills importance
Business law importance
Humor importance
Experience importance
Work-life balance
Professional Engineering
Role of law importance
Pro bono activities
Army ballistic missile
Dedication
Startup businesses and IRC § 351 (tax-deferred transfers of property to a controlled corporation):

The following proposed excerpt from the forthcoming 2012-2013 edition of Greenberg, Chapter 3 Tax Implications of Forming a Corporation in the New York Lawyers' Deskbook gives an indication of the wide application of I.R.C. § 351 in, e.g., startups:


In addition to the tax issues on transfers to controlled corporations in exchange for shares, on which this chapter is primarily focused, viz., I.R.C. § 351 (see III-XI (§§3.70-3.106)), other issues in starting a business, and to which an experienced expert may be required to be consulted, include, e.g., Securities Act of 1933, §4a(2), 15 U.S.C. §77d (which provides an exemption for a private placement of shares from registration of transactions by an issuer not involving any public offering); N.Y. Business Corporation Law (BCL). See, e.g., Michael J. Kliegman, Jeannette Martin, Representing Clients in the Sale & Purchase of Privately Held Corporations, Tax Considerations, American Bar Association Annual Meeting, at 25, (August 8, 2008), available athttp://apps.americanbar.org/buslaw/newsletter/0072/materials/pp5.pdf; Richard E. Climan, Joel I. Greenberg & Nathaniel L. Doliner, Negotiating The Acquisition Of A Privately-Held Business; Some Basic Issues And Principles at 36 (August 8, 2008), available athttp://apps.americanbar.org/buslaw/newsletter/0072/materials/pp5.pdf.

* * * *

Noteworthy is the variety of techniques utilized by startup businesses in tapping sources of funds, such as: (1) offer rewards but not ownership (see, e.g., infra note 7 (Kickstarter)); (2) self-funding or immediate-family-funding (e.g., student and parent) (see, e.g., Steven Kurutz, Leaving Home, but None of Its Comforts, N.Y. Times, Aug. 30, 2012, at D1 (reporting on start-ups by students and a recent graduate, a blog and an e-commerce site, apparently self-funded endeavors, that are geared to designing and furnishing dormitory rooms); (3) debt (e.g., loan from bank, friends, or family (secured (by mortgage or personal guarantee) or unsecured)); (4) venture debt (see, e.g., Douglas Y. Park, Venture Debt For Startups: The Basics (Aug. 30, 2010), http://www.dypadvisors.com/2010/08/30/venture-debt-for-startups-basics (“Venture lenders do not ask for a seat on the board of directors. Nor do they get involved in the operations or management of the company.”); (5) venture capital (see, e.g., Randall Smith, Tapping the Market for Start-Ups, a Fund Falters, N.Y. Times, Aug. 30, 2012, at B1 (reporting on “mini venture capital funds, taking stakes in start-ups and betting they will turn a profit if the companies are sold or go public.”); (6) angel investors (see, e.g., Sarah E. Needleman, ‘Angels’ Can Fund Your Next Step, Journal News, Aug. 26, 2012, at 2H (reporting on “so-called angel investors – wealthy individuals who invest in start-ups in exchange for equity stakes.”).  Cf. infra footnote 7 (at discussion of multinational corporations’ venture capital offices).


Particularly noteworthy is that some of the above funding techniques may involve the application of I.R.C. § 351 if, e.g., the startup is a corporation to which, in addition, say, to cash, various forms of other property (e.g., equipment, buildings, and intellectual property (e.g., patents) having a basis lower than its fair market value) is transferred by the founders and others to the corporation. A tax-deferred transfer to a controlled corporation would be desirable in such instances, which is the primary focus of this chapter. See infra III-XI (§§3.70-3.106).

Copyright © N.Y. State Bar Assn. 1989, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005-2006, 2006-2007, 2007-2008, 2008-2009, 2009-2010, 2010-2011-2012, 2012-2013.   All rights reserved.

Click here for N.Y. Lawyer's Deskbook. including Table of Contents.Click here for reference to Chapter 3 Tax Implications of Forming a Corporation in N.Y. Lawyer's Deskbook at "Details." See also "Chapters in Books" at "Selected Publ with links" on Navigation Bar.