In order to retain the services of Eve,a key employee in Ted's sole proprietorship,Ted contracts with Eve to make her a 30% owner.Ted incorporates the business receiving in return 100% of the stock.Three days later,Ted transfers 30% of the stock to Eve.Under these circumstances,§ 351 will not apply to the incorporation of Ted's business.

Question

Quizplus · Accepted Answer

Section 351 requires that the transferors of property to a corporation must be in control of the corporation immediately after the exchange, holding at least 80% of the stock. Since Ted transferred 30% of the stock to Eve shortly after incorporation, he does not meet the control requirement, and thus § 351 does not apply.

In Order to Retain the Services of Eve,a Key Employee