Ilima Kahale is the sole shareholder of Kahale Foods Co.Ilima owns one class of common shares which have a value of $200,000.Ilima is approaching retirement age and would like two key employees to take over Kahale Foods.At this point in time, the employees do not have enough excess cash to buy Ilima's shares.Which of the following statements is true with regard to a corporate reorganization that would allow the employees to take over the ownership of the company?
A)A reorganization of share capital would allow Ilima to convert common shares to fixed value preferred shares, while also issuing nominal value common shares to the employees, resulting in an immediate tax consequence for Ilima.
B)A reorganization of share capital would allow Ilima to convert common shares to fixed value preferred shares, while also issuing nominal value common shares to the employees, resulting in an immediate tax consequence for the employees.
C)A reorganization of share capital would allow Ilima to convert common shares to fixed value preferred shares, while also issuing nominal value common shares to the employees, resulting in an immediate tax consequence for the corporation.
D)A reorganization of share capital would allow Ilima to convert common shares to fixed value preferred shares, while also issuing nominal value common shares to the employees, resulting in no immediate tax consequences.

Question

Quizplus · Accepted Answer

A reorganization of share capital that involves converting common shares to fixed value preferred shares and issuing nominal value common shares to the employees can be structured in a way that does not result in immediate tax consequences for Ilima, the employees, or the corporation. This is because the reorganization can be done in a tax-deferred manner under certain tax jurisdictions, assuming it meets specific criteria set by the tax authorities.

Ilima Kahale Is the Sole Shareholder of Kahale Foods Co