Rules & Regulation
In addition to asset types, several other factors influence eligibility for a 351 Conversion.
SEC Requirements For A 351 Exchange
Understanding the nuances of what assets can be contributed, along with the additional eligibility factors, is critical for successfully executing a 351 tax-free conversion.
Custodial arrangements
Custodial arrangements: The custodian(s) for the transferred securities play a role in the complexity and timing of the in-kind transfers.
Alignment with the ETF prospectus
Alignment with the ETF prospectus: The contributed assets must reflect the guidelines outlined in the prospectus for the receiving ETF.
Gaining client permission
Gaining client permission: Current investors in the contributing entity (like an SMA) must provide their consent for the conversion
Accurate recordkeeping
Accurate recordkeeping: Meticulous records of the cost basis and purchase date of all positions in the contributing accounts are essential.
Sufficient AUM
Sufficient AUM: The strategy being converted should possess a sufficient level of assets to ensure the economic feasibility of the conversion, with $50 million being a recommended benchmark.
Section 351.–Transfer to Corporation Controlled by Transferor
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