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    Transferring Land to Corporation - Tax Impacts & Security

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    Several entrepreneurs plan to form a corporation for purposes of constructing a housing development. Randall 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 land, or take out a mortgage on the land before transferring it to the corporation. Comment on the choices Randall is considering. What alternatives can you suggest?

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    Solution Preview

    It would be preferable to tie up the land with a mortgage rather than corporate bonds, and here is why: should the corporation be unsuccessful with the development, the mortgage would continue to be linked to the land. His chances of recovery are far better with the land than with bonds. Bonds can go bad in a corporate dissolution, ...

    Solution Summary

    The 237 word solution discusses the differences to Randall in the two scenarios suggested, plus it adds two more possibilities to lower the risk to Randall in transferring his land to the corporation.