Exchange of shares can be a powerful and versatile tool for corporate tax planning.

Vancouver, BC -- (ReleaseWire) -- 08/09/2022 --When it comes to corporate tax planning, it can be hard to know where to begin. One of the simplest and most common methods--corporate reorganization—involves the shareholder of a corporation exchanging his/her shares in one class of existing shares, for shares of another authorized class. To learn more, go to https://www.mewco.ca/blog/vancouver-corporate-reorganization-and-tax-planning/

The primary focus of share exchange is freezing the current fair market value of the shares given up by the shareholder, referred to as the transferor. In exchange, the company issues the transferor shares in another class having the same value.

Normally, the transferor gives up all common shares in a particular class. In exchange, the transferor receives preferred shares with a fixed redemption value equal to value of shares surrendered. Since the redemption value of the preferred shares is fixed, fair market value of these preferred shares cannot increase as the performance of the company increases. Future success of the company would accrue to the other shareholders of the common class, not to the transferor.

Reorganization involving the exchange of shares is commonly used during estate planning when an estate freeze is desired. However, the reorganization approach can also be used in other circumstances beyond corporate tax planning.

For example, employee successions involving either an adult offspring—or even when an employee that is not a family member. Just as described above, the existing shareholder would freeze the current market value of his/her common shares by exchanging them for preferred shares with a fixed redemption value. The employee or offspring would be issued new common shares so that future benefits of the company would accrue to them.

Another scenario where the scenario could be initiated is a divorce settlement where each person owns 50% of the company and one spouse is no longer going to be involved with the business after the divorce. Again, the person leaving the company can be issued preferred shares (perhaps without voting rights) in exchange for the common shares.

Corporate reorganizations are an effective tool that can be employed in many situations for the benefit of all parties involved, both in business and personally. To learn more about corporate mergers and other tools, visit https://www.mewco.ca/

About Mew + Company
Company Website: https://www.mewco.ca Mew + Company, Vancouver, is an ideal solution to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.

To learn more about Mew + Company and discuss their services, go to https://mewco.ca/

Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604 688 9198