Jack and Diane transfer appreciated song lyrics to Mellencamp, Inc. The lyrics are property for purposes of §351. Jack & Diane have a basis in the song lyrics of $50,000 each (aggregate of $100,000). The song lyrics have a Fair market value of $500,000 each ($1,000,000 aggregate).
In exchange for the lyrics, Mellencamp Inc., issues 10,000 shares (each) of voting common stock to both Jack & Diane. The common stock has a Fair Market Value of $40 per share ($400,000 each and $800,000 aggregate). Jack & Diane also receive one (1) share each of non-voting preferred stock with a Fair Market value of $50,000 ($100,000 in total). Additionally, they receive a corporate note payable in the amount of $50,000 each ($100,000 aggregate).
The non-voting preferred stock issued at the time of the exchange allows Jack and Diane to force Mellencamp to purchase the stock in 10 years for the fair market value at such time. The note is payable in 2 years has state reasonable interest