Outline (c) 1998 Robert H. Daniels
Week 13: Freezes and Anti-Freezes
Outline (c) 1998 Robert H. Daniels
1. Freezes: General concept and application
Valuation of CHB interests
structure the interest so as to transfer the growth potential only
structure the interest so as to minimize the reportable value of the transfers
2. Structuring interests: contingent on survivorship
The Self-Cancelling Installment Note: Moss Para. 15,061
The Catch: IRD: Frane v. CIR, para. 32,043
3. Other ways of structuring transferable interests
- Control premium vs. minority discounts
- Voting vs nonvoting interests
- Fixed vs residual income return
- Fixed vs residual capital return
- Repurchase limitations
- Retained rights w/o intention to exercise
Strategic Structuring
Tie the rights up for a long period of time, and prevent having the puzzle put back together
Fragment, so that FMV of pieces is much less than the whole
Ripping up the "Mona Lisa"
Philosophical problem: why should the value of the entity differ from the sum of the value of the ownership rights in the entity?
Note that public markets exhibit discount phenomena
Posner's argument in Citizen's Bank: can fragment in a way that involves transaction costs in recombining
How to restructure existing business/portfolio interests
Creation of new "holding" entity
recapitalization (E Reorg),
problems in sale to related corporation under 304
disadvantage of corporate ownership interests: no deduction for dividends
Problem w/ S-Corps: one class of stock (except voting rights)
Result: the limited partnership or LLC as the preferred device
Flexibility as to types of interests
Special allocations of income
Pass-thru teatment
Built-in illiquidity
Build Date 5/6/98
