Structuring QSBS Transactions

Purchasing existing stock or assets in a company does not qualify as qualified small business stock (QSBS). QSBS has to be newly issued stock and qualify as a Section 1202 qualified small business. Refer here for details on what constitutes a qualified small business.

Section 1202 of the tax code does not say whether or not a holding company or blocker corporation would disqualify the target company stock. It may be possible that a holding company that owns a qualified small business(es) is operating as a qualified small business through its subsidiaries. 

Possible strategies could include:

(i) incorporating a holding company to acquire the stock

(ii) incorporating a blocker corporation

(iii) purchasing and contributing the assets to a newly formed corporation

(iv) Forming a Management Holding Company

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

About QSBS Expert

QSBS Expert was founded by a group of entrepreneurs, investors, accountants and lawyers who came together when trying to navigate a QSBS situation of their own. We quickly realized that the regulations left a lot of open questions and the publicly available information was confusing to sift through…so we thought that others may also benefit from having a “go to” resource for all things QSBS.