Question
1. Four friends plan to form a corporation for purposes of constructing a shopping center. Charlie will be contributing the land for the project and
1. Four friends plan to form a corporation for purposes of constructing a shopping center. Charlie will be contributing the land for the project and wants more security than shareholder status provides. He is contemplating two possibilities: receive corporate bonds for his lnd or take out a mortgage on the land before transferring it to the corporation. Comment on the choices Charlie is considering and make an argument for the one you would recommend.
2. Just to clarify a couple of points about this question, the purpose of taking out a mortgage is not that he will be lending money to the corporation secured by the land. Rather he will borrow from the bank the value of the land then he will contribute both the land and the liability on the land to the corporation. This way he ends up with cash instead of either just stock or a bond. With that in mind what would happen in this case if Charlies adjusted basis was higher than the fair market value of the land?
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