Tax implications from receiving comapny stock

My boss has agreed to give (we have earned it) myself and two other employess each 10% of the company, making us his partners. We currently run the business. This is not a publicly traded company. He has all the stocks (I think 100,00 shares) and will give each of us our 10% on demand. However we are wondering what the tax implications of this transaction would be for us 3 or if their is a way this can be done so their is no taxes at all???

Transfer of stock

If you are given stock in exchange for services rendered, as is the case here, the value of the stock given will be ordinary earned income for you, fully taxed when received. The corporation can take a deduction for the stock, but only to the extent of its basis, which is probably very little compared to current value.

However, you may be able to work out some sort of stock option plan, whereby the two of you are granted statutory stock options, with very low purchase prices. An employee has no taxable income when he receives or exercises a statutory option, and recognizes income only when he disposes of the stock.

Be careful though. Stock options rules must be followed precisely, and if the proper formalities are not followed, the result could be the opposite of what you intend. I definitely advise you to hire a CPA or tax attorney to plan this for you. Your situation may dictate some other strategy, and this is a complex area of tax law.