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 or B-Corps do not receive special tax consideration (e.g. most people believe they are nonprofits) but are taxed as either an S Corp or C Corp.
For tax purposes, the title PBC or B-Corp is disregarded, and the company is viewed as whatever taxable entity is elected. Firstly, the PBC and B-Corp designation is more for a public social image. Secondly, it is a staple for setting an internal culture based not the company’s mission. As a result, when C Corp is elected the PBCs and B-Corps would be recognized as a qualifying legal structure for the QSBS tax exemption.
What benefits does this QSBS exemption provide?
Accordingly, the QSBS exemption is an economic development tax incentive that can allow all stakeholders who own stock in a qualifying QSBS business to sell their shares with up to 100% in capital gains tax exclusion. However, there is a checklist of items to follow to maintain the QSBS status on shareholder, company, and transactional levels. Below are links to each of these guidelines:
- Entity structures that qualify for QSBS
- Size limit of a QSBS small business
- Qualifying QSBS industries
- Active business requirements
- Stock purchasing guidelines
- QSBS holding period
- QSBS gains excludable
- Reporting QSBS on your taxes
- QSBS exclusion for state taxes
- QSBS gain rollover
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.