A corporations aggregate gross assets can not exceed $50 million after August 10, 1993, before the issuance of the stock, and immediately following the issuance. Therefore, the amount of money or property exchanged for the QSBS can not push aggregate gross assets over $50 million. After the QSBS is issued and all qualifications are met the corporation can exceed $50 million in aggregate gross assets during the required 5-year holding period. Below is an example of a timeline of when a corporation qualifies as a qualified small business.
For a better understanding, below is a real world example.
Over the last 4 months ABC Corporation has been raising its Seed Round of financing to take its minimum viable product (MVP) to market. Recently, the company has only raised from friends and family, but the founder has been in communication with well-known angel investor Rick Irvine. Mr. Irvine has been conducting deep due diligence on ABC’s business and has just reached out to his tax practitioner to determine if ABC qualifies for section 1202 tax exclusion. After further review, the accountant determines the aggregate gross assets of the business are $30 million; therefore, to maintain QSBS status Mr. Irvine can not invest over $20 million. Mr. Irvine invests $15 million, leaving assets at $45 million immediately after the issuance. One month later Zach Cook invests $10 million, pushing assets to $50 million. Mr. Cook’s investment does not affect Mr. Irvine’s QSBS status, but it does affect his.