Why would a big business act small?

Small Business Jobs Act of 2010: Does a single or two owner Delaware C-corp established with $100K of capital  before Jan 1, 2011 qualify under SBJCA 100% cap gains exclusion?

• If  one or two people were to fund a Delaware C-corp before end of year  with $100K capital and the corporation then engages in  the next few  years to develop a software product or service and otherwise meet the 5  year holding period requirement, what might disqualify this structure  under the SJBCA for the ?  Do these investors have to do anything more  before Jan 1, 2011 than use,say, BizFilings to incorporate in Delaware,  fund the company, and issue the stock? Assume $100K is enough to fund  the company for 1-2 years and the founders/investors will not draw  salary.  (Not debating the merits of the 100% exclusion vs. the 50% exclusion  always available or in the worst case  15 or 20% long term capital  gains. Just trying to figure out the minimum work required before the  deadline)  Why might this be a bad idea  ? At first blush it would  appear that if you wanted to pursue an idea, this would be the most tax  advantageous way to park your money now, and if things do not work out  or if their is a disqualifying even later,  you are no worse off from a tax perspective than any other way of investing money in a start up idea of your own.

• Answer:

  To qualify for the QSBS gain exemption the business must devote 80% or more of its assets to a qualified business activity for substantially all the time you own the stock.  That would make it difficult to "park" your money for very long. Also if you sell software you probably could qualify the business, but any service business does not qualify. Assuming you can overcome those hurdles, then yes there are definite tax advantages to the strategy.