Qualified Small Business Stock ("QSBS") is a tax incentive that provides up to a 100% capital gains tax exclusion to stockholders of a qualified C Corporation, not an S Corporation. If you are a founder and were advised to structure your company as an S Corporation because … Read More
Most importantly not only can you provide a public benefit with your company's mission but also elect to receive the C Corporation tax exemptions as a PBC (i.e. Public Benefit Corporation) or B-Corp. PBCs and B-Corps can qualify for Section 1202 Qualified Small Business Stock (QSBS). PBCs … Read More
The answer is maybe.... because there are so many layers and nuances that make the tax code confusing. If you are unfamiliar with QSBS it stands for Qualified Small Business Stock and is regulated under Section 1202 of the IRC tax code. In short, QSBS is an … Read More
Section 1202(e) explicitly states that “start-up activities” under Section 195(c)(l)(A) or research/experimental activities under Section 174 or Section 41(b)(4) will receive special treatment when testing for the active test. Therefore, if an angel investor is investing in a startup company that is pre-revenue and is still in the idea stage, trying to reach product-market fit, the … Read More
Section 1202 states that a ” ‘qualified small business’ means any domestic corporation which is a C corporation” and does not explicitly state treatment for an LLC taxed as a C-Corporation. Although this is true, in Ltr. Rul. 201636003 a tax-free reorganization involving an LLC taxed as a C Corporation and converted to a … Read More
The general intent of QSBS is to encourage development of companies that are created to drive new innovations and spur job creation, however not every type of C-Corp can qualify for issuing QSBS. Companies incorporated in the U.S. as C-Corps are eligible for QSBS unless the corporation was formed … Read More
In order to qualify as QSBS, the corporation has to be a C-Corp on the investment date, but not before. If the business was formed as a different legal structure (e.g. LLC, S Corporation, Partnership), the company can terminate its legal structure to re-incorporate as a C-Corp before … Read More
To become a C-Corp, a company must file Articles of Incorporation with the Secretary of State and file IRS Form SS-4 to obtain an employer identification number (EIN). A few indications that the Company is likely a C-Corp include: Name ends with either the identifier “Incorporated” or “Corp”.Business … Read More
Early stage companies find the C-Corp structure appealing because: C-Corps limit the liability of investors and firm owners. The most an investor can lose if the business were to fail is what they have invested into the business.C-Corps can issue different types of equity instruments such as convertible … Read More
Only C-Corporations can qualify to issue Qualified Small Business Stock (QSBS) per Section 1202. C-Corporations or “C-Corps” are legal entities in which the owners or shareholders are taxed separately from the entity. C-Corps are taxed on their income before paying out earnings in the form of dividends to … Read More
