Source: http://ronalddavidgreenberg.sharepoint.com/Pages/GalleryStartups.aspx
Timestamp: 2017-08-20 22:56:49
Document Index: 65429433

Matched Legal Cases: ['§ 351', '§ 351', '§ 351', '§3', '§4', '§77', '§ 351', '§3']

NYSBA Deskbook excerpt on startup businesses
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).
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