A purchaser is interested in purchasing an operating subsidiary ("Opco") of a management corporation ("Managementco") and not Managementco. Accordingly, the individual shareholder of Managementco transfers his shares of Managementco to Opco in consideration for shares of Opco and Managementco is wound-up into Opco. The individual then sells all his shares of Opco utilizing the capital gains deduction.
No dividends will be deemed to have been paid by Opco at the time the shares in its capital stock held by Managementco are cancelled because no amount would have been paid by Opco at the time of this cancellation.