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2. Mr. Java ("Java") has operated a chain of coffee houses as
2. Mr. Java (?Java?) has operated a chain of coffee houses as a sole proprietorship over the past three years and is now interested in expanding his horizons and limiting his liability. To do so, he wishes to incorporate, raise$150,000 of additional capital and hire an experienced person to manage the business.He has located Venturer, who is willing to invest $150,000 cash and Manager, who has agreed to serve as chief operating officer if the terms are right. The parties have decided to join forces and form Java Jyve, Inc. (?Jyve?) to expand the coffee house business and offer access to the Internet at every location.Java will transfer assets with an aggregate basis of $50,000 and a FMV of $200,000 (do not be concerned with the character of the individual assets for this problem); Venturer will contribute $150,000 cash; and Manager will enter into a five-year employment contract.Java would like effective control of the business; Venturer is interested in a guaranteed preferred return on his investment but also wants to share in the growth of the company; and Manager wants to be fairly compensated(she believes her services are worth approximately $80,000 per year) and receive stock in the company, but she cannot afford to make a substantial cash investment .All the parties wish to avoid adverse tax consequences.
This question was answered on: Feb 21, 2020
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