Practice question
Property transferors collectively hold only 45% of voting power after an exchange. A separate employee receives 10% solely for services. The parties count the employee as a property transferor to assert the 51% test is met. No other qualifying reorganization route is invoked. Which is correct?
- Every services share must be treated as property consideration
- The services proviso prevents using that employee’s services shares as qualifying property-transfer consideration; the stated property group remains below the control threshold
- All stock issues are automatically tax free
- Control has no relevance to this route
- An employee’s title alone cures the shortfall
Legal references
- RA 11534, Section 10, amended NIRC Section 40(C)(2) and (6): https://lawphil.net/statutes/repacts/ra2021/ra_11534_2021.html
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