Question
4.(a) A, an individual, is an architect and general contractor. B is a wealthy individual. Newco is organized with one class of stock - common.
4.(a) A, an individual, is an architect and general contractor. B is a wealthy individual. Newco is organized with one class of stock - common. Newco is authorized to issue 100 shares of this common. B transfers 500,000 of cash to Newco in exchange for 50 shares of Newco's stock. A signs a contract with Newco in which A will perform services designing a housing project and then acting as general contractor on the construction of that housing project. In exchange, A receives the remaining 50 shares of Newco's stock. How will A be treated in this transaction?
(b) Suppose instead that A and Newco do not enter into a written contract. A transfers 500 in cash for 50 shares of Newco's stock while B transfers $500,000 for 50 shares of Newco's stock. A then performs the architectural and contracting services for no further charge. Would this change your answer?
(c) Suppose instead that A incorporates Newco by himself. At the time of incorporation, A transfers 5,000 of cash for 50 shares of stock. This cash is used by A to develop plans and designs and get permits. A performs other work in preparation for building the housing project. After 9 months of preparation by A, Newco seeks capital and B transfers 500,000 in exchange for 50 shares of Newco. Newco builds the housing project with A acting as general contractor without charge. How will A be treated?
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