Section 20 Form No. 5-Plan of Recapitalization

• Library: Business Transitions 2009 Forms

The following is a plan of recapitalization involving the partial transfer of the equity interest in a family business from one generation to the next through a diversification of the corporation's capital structure. As mentioned in § 1.7 of Chapter 1, it is important to review the tax effect of this plan. The plan below does not discuss the tax issues that are presented by the recapitalization.

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Plan of Recapitalization

Missouri Dairy Farms, Inc. (the "corporation"), is a Missouri corporation, organized in 1980 with a stated capital of $7,000, represented by 100 shares of no par value common stock. Art Jones and his wife, Wilma, each own 50 shares of common stock, which they acquired at the time the corporation was formed. Each of their tax basis in this stock is $3,500. The corporation is engaged in a dairy business; however, it recently purchased a substantial tract of land that it is believed can be developed over the next ten years at a considerable profit. The land is carried on the corporation's books at its cost of $410,000.

The Joneses are advancing in age and wish to seek a less active part in the...