Corporate Formation and Capitalization

The process of forming a corporation requires the transfer of money or property from prospective shareholders to acquire shares of capital stock in the company. The law however, SS351 provides that transferors (i.e. prospective shareholders) do not have to make any gains or losses from this kind of transaction Replace Document Online.

A History of Taxation Basic Requirements

In order for SS351 to be effective, the owners of the property. That who transfer it to a company must, as a collective have control over the company immediately following the exchange 1. Gain or loss are not acknowledged when the transferors receive only stock. Gain. But not loss has recognized when transferors have given other assets in addition to the stock.

Notice: When the recipient receives property, which includes the securities of the company or cash in addition to stock. In exchange for property being transferred gains. If there has any is tax deductible up to the amount of amount or fair market value of the the property that has acquired (SS351(b)(1)).


A company does not recognize loss or gain on any transfer of assets or cash to the company in exchange for stock of the corporation (including the treasury stock). Further a company does not realize any gain or loss arising out of the expiration. Or purchase on an option purchase and sell shares (SS1032).


What is “property” for purposes of the SS351 code is unclear. Because there is no precise definition within the Code for the word “property” in this context. However the Code and its regulations have defined certain items that are not property Replace Document Online..

Stock Solely For Services

Securities or stock issued in exchange to pay for services (past and present or in the future) have not exchanged for real estate (SS351(a)). A transfer of service to a company as a condition of obtaining stock results in tax-deductible compensation for the person who transferred (SS351(d); William S. James 53 TC 63(1959) A.C. ).