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Hi. A new corporation with $1M valuation
I have a new corporation client that incorporated in Delaware with a $1M valuation. It is a software company. the founder has 270000 shares at $2 per share. The founder contributed $90000 in cash and the remainder $450,000 is sweat equity. How do I account for this sweat equity? Can it be capitalized as a startup expense in which case it won't be taxable to the client or shareholder loan as the debit balance? It does not qualify under section 351 because 70% of ownership in the corporation came from sweat equity of other shareholders.
