Form a corporation. Explain what each shareholder contributed and what stock percentage and FMV they received...

Form a corporation. Explain what each shareholder contributed and what stock percentage and FMV they received in return.

Explain what tax consequences/gains if any recognized upon formation and the Initial bases in the stock for each shareholder.

Expert Solution

Assume we form a company XYZ LTD. Company require money to start his business operation so he issued share capital to get money for business. Company procure land, building, machinery, stock, and other assets from this capital money, and utilize these assets to earn profit from operation and other business activity. When company earn profit, than their net assets also increase with profit amount. This business activity goes on and on, and company earns profit so and so. But their no of equity share remains same. Its means company net assets increase for every equity capital investment made by shareholder. This will increase company share market price. And shareholder gets gain of increased value.

Tax gain/loss to shareholder- When shareholder sells his shares to any other person he would get gain/loss on these share, which is calculate as follows:-

Gain/ loss on share transfer= Sales proceeds –cost of equity share to shareholder

Above gains will be included in gross total income of shareholder. Shareholders will pay income tax on this gain.

ekkarill92 answered 1 year ago

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