Question about stocks and taxes

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mojave
Posts: 393
Joined: Mon Aug 20, 2012 8:59 am

Question about stocks and taxes

Post by mojave »

I have a pretty basic-ish stock question that I can't seem to find an answer for, I wonder if it's because there is a term for it or I just am not describing it well to Google :)


Let's say I own shares in company A. Company A buys or merges with company B. A new stock is then created, for new company C.

What happens to my shares in company A? What taxes would I pay, and would I automatically get stocks in Company C?
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: Question about stocks and taxes

Post by Karamatsu »

In the most common scenario you'd receive shares of C in exchange for the shares in A. There should be a formula defining how many shares of C you'll receive in the memo that you received describing the merger. There should be no taxes involved unless you received "cash in lieu" of fractional shares.
MN Finance
Posts: 1926
Joined: Sat Dec 22, 2012 9:46 am

Re: Question about stocks and taxes

Post by MN Finance »

The exception to a merger/buyout not being a taxable event is if it's a tax "inversion" that's been in the news lately. MDT for example. Those are taxable events.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: Question about stocks and taxes

Post by Karamatsu »

Yes, as with everything else in finance there are clever exceptions, so you really have to look carefully at the information you've received and see how that fits your particular situation. The few times I've had something like that the company usually included some general tax guidelines in the materials they sent, so if there is something like that, it should be a good place to start.
derosa
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Joined: Wed Jul 24, 2013 5:18 pm

Re: Question about stocks and taxes

Post by derosa »

As I understand your example -
You own shares of A.

A and B get together and create a brand new C. A and B don't exist anymore. In that process you would get a very specific number of shares in C based on how many shares of A you owned. There is no tax liability for you in this situation.

IF A bought B and there was no new company C. You still have the exact same number of shares A that you had before. There are no taxes for you in this situation.
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