It is not easy for an investor, especially as a minority investor with limited, if any, visibility into the Company’s operations, to know if the Company has used at least 80% of its assets towards activities that qualify for QSBS.
Unless the Company changed directions in a significant way during the time you held your shares, the best support for the Active Business Requirement may be the corporation’s representation they may have made at the time the shares were issued. Your Share Purchase Agreement may include a QSBS clause, which may contain language where the corporation represents that they will aim to maintain the securities QSBS eligibility, such as the corporation stating that it,
“will use its reasonable efforts to cause such shares to qualify as Qualified Small Business Stock; provided, however, that “reasonable efforts” as used in this Section shall not be construed to require the Company to operate its business in a manner which would adversely affect its business, limit its future prospects or alter the timing or resource allocation related to its planned operations or financing activities.”
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
