Simple Agreements for Future Equity, otherwise known as SAFEs, exist thanks to the startup accelerator Y-Combinator’s 2013 innovation.
With a SAFE, an investor makes a cash investment in a company, but the actual amount of stock they receive is determined at a later date, in connection with a … Read More
Can I ask the IRS if my company qualifies as a Qualified Small Business?
Taxpayers can seek guidance from the IRS to determine whether their company or a company in which they are a shareholder meets the definition of a Qualified Small Business (QSB). This would involve requesting … Read More
If there was a simple “yes or no” equation for this question, this would be a very short article. The reality is more complex, since individual circumstances will impact how companies handle QSBS-related requests. Because both the company and the individual shares held need to qualify, this … Read More
Qualified Small Business Stock (QSBS) is a tax incentive that I have found few are aware of and even less understand. Once you start to unpack it, you realize its importance if you spend time investing in early stage companies as it can lead to a 100% … Read More
"Never invest in anything that eats or needs repairing." - Billy Rose
Putting Section 1202 QSBS (i.e. qualified small business stock) and convertible note ("QSBS Convertible Note") in the same sentence is a recipe for an "investment needing repaired". If you have stumbled upon this page there are … Read More
Generally, when talking about qualified small business stock (QSBS) someone is referring to the direct investment they made in a small business, stock options, or the founding of a business, but limited partners (LP) in a partnership also qualify. When an LP invests in an investment vehicle … Read More
Another avenue could be to create a management holding company where the insurance, finances, and payroll are managed.
According to the AICPA, a qualified small business for Section 199A QBI can be a management holding company. Tax accountants and lawyers have been looking to Section 199A for … Read More
This scenario is a typical transaction structure that PE funds will utilize.
When a fund is acquiring a members interest in a pass through entity and not stock in a corporation the fund will set up a blocker corporation so that the income is not passing through … Read More
The below graphic illustrates a PE fund acquiring the assets of an existing company.
The PE fund will then form a new corporation and contribute the assets at FMV to the corporation in return for newly issued shares of QSBS. Remember… this can only be done if … Read More
The graphic below illustrates the ownership structure after 100% of the stock is acquired in a qualified small business.
The PE fund would form a holding company that would issue QSBS to the PE fund after infusing capital into the holding company. The holding company would then … Read More