Frantz v. Commissioner of Internal Revenue

Agreement to Incorporate as an S Corporation and as Small Business Corporation with Qualification for Section 1244 Stock

Agreement made this the (date) between

, herein referred to as

Incorporator One – A-1, of ,

, herein referred to as Incorporator Two A-2, of

,

, herein referred to as

Incorporator Three A-3, of , Incorporator One, Incorporator Two, and Incorporator Three being jointly referred to as the Incorporators.

Whereas, the parties desire to organize under a corporation to be known as , or such other name as the parties may select, for the purposes set forth in Article of the proposed Articles of Incorporation, a copy of which is attached to this Agreement as Exhibit A and incorporated by this reference; and

Whereas, the capitalization of the Corporation shall be as set forth in Article of the proposed Articles of Incorporation; and

Whereas, the parties contemplate that the shares of the Corporation will remain closely held and will not, therefore, be readily marketable, and wish to provide a market for the shares of any party or the estate of any party desiring to sell the same, the parties propose, immediately on entering into this Agreement, to execute a stockholders' buy-sell Agreement in the form attached to this Agreement as Exhibit B and incorporated by this reference; and

Whereas, the parties propose that immediately on formation of the Corporation, to cause the Corporation to become a party to such buy-sell agreement; and

Whereas, the parties desire to ensure full deductibility of any losses they may sustain in the disposition of any shares of the Corporation issued pursuant to this Agreement, and to this end it is understood that the parties shall cause the Corporation to take such action as may be necessary to assure that the authorized shares of the corporation, including the shares issued pursuant to this Agreement, shall qualify as “Section 1244 stock" within the meaning of Section 1244 of the United States Internal Revenue Code; and

Whereas, the parties seek to avoid double taxation of the earnings of the corporation, and to this end it is understood that they shall cause the Corporation to elect to be taxed under the provisions of Subchapter S of the United States Internal Revenue Code, and that each of them shall consent in writing to such election;

Now, therefore, for and in consideration of the matters described above, and of the mutual benefits and obligations set forth in this Agreement, the parties agree as follows:

I. Subscription for Stock.

Each of the undersigned parties subscribes for and agrees to purchase from the corporation, at the prices set forth below, the following number of shares:

II. Incorporation.

The parties and each of them shall act as incorporators of the Corporation and shall execute and file with the Secretary of State of original articles of incorporation in the form attached as Exhibit A.

III. Adoption of Bylaws.

On formation of the corporation, the parties shall use their best efforts to cause it to adopt bylaws in the form attached to this Agreement as Exhibit C.

IV. Stockholders' Agreement.

Immediately on execution of this Agreement, the parties agree to enter into a stockholders' buy-sell agreement in the form attached as Exhibit C. On formation of the corporation, the parties, and each of them, shall exercise their best efforts to cause the Corporation to consent in writing to be bound by the terms of the stockholders' buy-sell Agreement.

V. Section 1244 Stock Plan.

Prior to the payment for or issuance of any of the shares of the Corporation pursuant to this Agreement, the parties and each of them shall use their best efforts to cause the Corporation to adopt a Section 1244 Stock Plan in the form attached as Exhibit D.

VI. Subchapter S Election; Consents.

On formation of the corporation, and within the time provided by law, the parties and each of them shall exercise their best efforts to cause the Corporation to elect to be taxed for federal income-tax purposes as a small business Corporation under the provisions of Subchapter S of the United States Internal Revenue Code and to file timely notices of such election with the United States Internal Revenue Service. Such election shall be for the initial taxable year of the corporation, and for all subsequent taxable years. Additionally, each party shall consent in writing to such election and file timely notice of such consent with the United States Internal Revenue Service.

VII. Exemption from Securities Act of 1933.

Each party represents and agrees that the party's subscription for and purchase of shares under this Agreement is for investment purposes for the party's own account, and that the party has no present intent to resell or distribute such shares. Each party further represents and agrees that the party is now and shall be at the time of purchase of the shares subscribed for under this Agreement a bona fide resident of .

Witness our signatures this the (date).

Attach Exhibits