$-1.$ Problem $8$

Matt, a resident of Toronto, owns all the common shares of Beam Inc., a company he owns and

operates. Matt is a custom home builder. He incorporated his business in $2004$ and has operated the

custom home building business which now has $12$ employees from a facility in Milverton, Ontario. Matt's

son has been employed full$-$time by the business for the past $5$ years since graduating from college. The

adjusted cost base and paid$-$up capital of these common shares is $$300,000$ and the FMV is $$900,000.$ In

the course of a reorganization of capital in Beam Inc., the following two packages of consideration have

been offered to Matt by Beam Inc. in exchange for his common shares:

Package $($a$)$

FMV and LSC of Class A preferred shares

$$Redeemable and retractable at FMV $.....810,000$

Package $($b$)$

Cash $...............................................$ $$500,000$

FMV and LSC of Class A preferred shares

Redeemable and retractable at FMV $.....,400,000$

Matt would like your advice on which option is better for him and whether there is a better option.

After the reorganization, common shares of the company will be issued to Matt's $30-$year$-$old son for

a nominal amount.

Before you meet with Matt you want to:

$($A$)$ Assess the situation.

$($B$)$ Identify the issues.

$($C$)$ Analyze the issues.

$($D$)$ Advise$/$recommend$.$